E-Books Will Be The Death Of Bookstores

| February 24, 2011 | 0 Comments

Do you enjoy going to the bookstore?

I know I do.  I’ve spent many an hour hanging out in bookstores.  I love perusing all kinds of books and magazines.  And now that coffee’s available, well let’s just say my wife has to drag me out.

If you love bookstores like I do, I’ve got some bad news for you…

The bookstore era is coming to an end.  We’re soon going to see fewer and fewer bookstores in our neighborhoods.

I have mixed emotions about it.

I love spending time in bookstores.  There’s just no other way to get the full experience… sipping coffee, scanning all the latest publications.

But then I got the Kindle.

In case you don’t know, the Kindle is Amazon’s (AMZN) e-book reader.  It’s a fascinating gadget.  With the Kindle, you can download and read most books, magazines, and newspapers.

It’s lightweight, easy to read, and has huge storage capacity.  The device also has easy access to thousands of publications and offers cheaper prices on many of those publications.

I never thought I’d prefer holding a gadget over an actual book.  But I must say… I’m a convert.

Here’s the thing…

Millions of people are converting to e-books.  And that’s why the store-based booksellers are in big trouble.

If you’ve been following the news lately, there’s been a lot happening with the country’s biggest bookstores.  I’m not going to sugar coat it… It’s pretty grim news.

Let me summarize the news for the two big players in the market.

Borders (BGP) recently filed for bankruptcy.  The company’s shares have basically stopped trading and are sitting at $0.23.

Barnes & Noble (BKS) just suspended their dividend and they’ve seen their shares drop over 25% in two days.  They also won’t be providing any financial forecasts for the rest of the year.  That’s never a good sign.

So what’s the deal?

Bookstores are rapidly losing revenue to Amazon and other online booksellers.  You see, e-books are a big hit with consumers.  And, e-books are starting to represent a significant portion of overall book sales.

In 2010, e-book sales made up over 8% of all trade book sales in the US (trade books don’t include educational and professional titles).  That’s a big jump from 2009 when e-books only made up around 3% of the market.

To put it another way, printed trade book revenues dropped over 5% in 2010.  Meanwhile, e-book revenues more than doubled to $440 million.

The trend is unmistakable.

So how can you profit from this rapidly changing market?

First off, Borders is done.  Stick a fork in it.

They were three years late to the e-book party.  They don’t have much in the way of attractive real estate.  And of course, they’re in bankruptcy… never an easy thing to recover from no matter who you are.

Barnes & Noble is in better shape, but they still have a tough road ahead.  They were two years late in offering e-books.  But, at least they have a presence in the market.  Their e-book reader, the Nook, has 22% of the market.  Not great, but not bad either.

One positive for Barnes & Noble is they’re in a position to profit from the Borders’ bankruptcy.

They can pick and choose some of Borders’ better locations and move into them.  And, while e-books may be the way of the future, there will always be demand for physical bookstores.  Clearly, Barnes & Noble is set to become the only major player in the market.

That being said, there isn’t a whole lot of upside there.

For a company with big time potential, look at Amazon.

The Kindle dominates the e-book market.  It has a whopping 67% share of this fast growing market.  Plus, Amazon has several other successful products and services to offer.

What’s more, they’re a well run company with an excellent track record.  And they’re constantly branching into new markets.

Here’s the bottom line…

Sitting at home with a Kindle and home brewed coffee may not be as exciting as going to the bookstore.  But, the competitive landscape is rapidly changing.  Those who can’t adjust will get left behind.

I’ve come to love my Kindle.  And, I’ll appreciate it even more when Amazon shares go through the roof.

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Category: Stocks

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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