For bookseller Barnes & Noble (NYSE:BKS), the recent bankruptcy filing of its rival, Borders Group, is leading investors to wonder about what's next. Will the failure of its rival and the rapidly changing book selling business signify doom for Barnes & Noble, or are there ways for this survivor to successfully remake itself?

IN PICTURES: Learn To Invest In 10 Steps

A Sad History of Decline
The Borders bankruptcy may one day stand as a symbol of the decline of the traditional book selling business. That said, Borders was arguably poorly managed even when the traditional hard-copy, brick-and-mortar bookstore model ruled the book selling world. Over expansion, poor management decisions, and its inability to adapt to digital publishing helped set Borders up for failure.

Amazon the Killer?
Amazon.com
(Nasdaq:AMZN) is to Borders and book selling what Netflix (Nasdaq:NFLX) is to Blockbuster (OTC:BLOAQ) and movie rental. Yet while the short story is that Amazon strangled Borders via the online marketplace and eventually plunged it into bankruptcy, the same fate hasn't befallen Barnes & Noble - at least not yet. Whether Barnes & Noble is simply next in line or learns and implements the lessons from Borders' cautionary tale is the issue.

Barnes & Noble's Situation
Barnes & Noble recently suspended its dividend, and although its total revenue has held up well recently, it has had slowing earnings. The company put itself up for sale, but with the turmoil in the marketplace there have been no takers so far. Barnes & Noble will continue to invest in its Nook e-reader, which competes with Amazon's Kindle and others, in the hope of capturing an even larger share of the e-book business.

The Digital Wave
While Borders hopes to emerge from bankruptcy leaner and more fit to compete, or at least to survive, much of present and most of the future of book selling is digital. Books-A-Million (Nasdaq:BAMM), another brick-and-mortar chain, has so far managed to stay profitable via able management, a developed internet presence and a diversity of products beyond books.

With e-book entrants such as Google (Nasdaq:GOOG) and new entrants in the e-reader or tablet area seemingly emerging every week, Barnes & Noble needs to accelerate the growth of its e-book business. It's investing heavily in Nook, so profitability will be dampened there for a while, but with its 25% share of the e-book market it's clear that digital is the future.

A Possible Future
The newspaper industry, with its printed paper product dying, has offered a potential model of survival if not growth. Pay-for digital news is already here, with NewsCorp (Nasdaq:NWS) (which owns the Wall Street Journal) among the publishers with digital publications. Magazines are migrating toward an online audience too. Added to this is the obvious advantage of NewsCorp and others such as The New York Times (NYSE:NYT), The Washington Post (NYSE:WPO) and Gannett (NYSE:GCI), which own broadcast, cable or internet businesses.

The Bottom Line
Barnes & Noble needs to adapt a similar model around diversifying into digital publishing. It needs to build up its digital stake substantially, find alliances and develop ancillary businesses so it won't be dependent on its physical stores. This is easier said than done, but Barnes & Noble's survival will depend on making this happen. (For related reading, also take a look at 4 Industry-Changing Tech Trends.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    Redefining the Stop-Loss

    Using Stop-losses for trading doesn’t mean ‘losing money’, but instead think about the money you'll start saving once you learn how they work.
  2. Fundamental Analysis

    10 Major Companies Tied to the Apple Supply Chain

    Apple has one of the best supply-chain models. Here are some of the top businesses involved, and the benefits and challenges for all.
  3. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  5. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  6. Stock Analysis

    Fortinet: A Great Play on Cybersecurity

    Discover how a healthy product mix, large-business deal growth and the boom of the cybersecurity industry are all driving Fortinet profits.
  7. Stock Analysis

    2 Catalysts Driving Intrexon to All-Time Highs

    Examine some of the main reasons for Intrexon stock tripling in price between 2014 and 2015, and consider the company's future prospects.
  8. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  9. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  10. Technical Indicators

    4 Ways to Find a Penny Stock Worth Millions

    Thinking of trading in risky penny stocks? Use this checklist to find bargains, not scams.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!