Asymmetrical Information - Megan McArdle

02.25.13

Can Barnes and Noble Be Saved?

The founder wants to buy the company back. Why?

Leonard Riggio, the founder of Barnes and Noble, wants to buy his company back.  Or at least the retail parts.  Matt Yglesias notes that this seems to suggest that the Nook is doomed; it may be a good product, but it can't compete in a space crowded by Amazon, Google, and Apple.  I think he's right.

But I'm not sure the retail stores are a much better business.  When I looked at the Big Box market last fall, I emerged deeply skeptical that anything can be done to save that particular business model.  Not with the floor space that these stores have.  Stores like Best Buy and Barnes and Noble used to be the leaders in both price and selection (which is why they put so many smaller stores out of business.  Now that leader is Amazon.   And I don't see any way for either company to get that title back.  Amazon's giant warehouses afford it huge economies of sale, but they're also cheaper to operate simply because they don't require smiling employees, inviting decor, and prime locations.  They're on dirt cheap land in the middle of nowhere, and the goods are packed in endless rows, and the employees can be driven to previously untold heights of productivity.  Eventually robots may let the company get rid of most of those employees, too.  

These companies are going to have to reinvent themselves, but that's very difficult to do with all that expensive, prime real estate sucking up cash and attention.  It will be even harder if they do an LBO.  If I were Mr. Riggio, I'd go back and try to reconceptualize the bookstore from scratch, starting small and expanding as needed, rather than trying to salvage the brilliant idea of three decades ago.  On the other hand, I don't have a successful company to save.