Andy Laties: We don't know what he's doing, either

The always-perceptive Mike Shatz has gotten a fascinating conversation going at his Idea Logical blog with a commentary in which he notes that “the competitive advantage of the trade publisher is inextricably dependent on the survival of brick-and-mortar shelf space for books,” and that by his calculations “we’re talking about a brick-and-mortar decline from 72% of the market today to 25% in 5 years!”

The post has generated a ton of passionate and interesting responses, both in the comment section and on other blogs — such as this comment, our favorite, from Andy Laties at his Rebel Bookseller site:

For the past several days I’ve been vociferously commenting on a fascinating blogpost. Industry expert Mike Shatzkin believes that the rapid rise of eBooks will depress print-book sales so much that chain storefronts will not be able to continue to operate profitably. He thinks that a very large number of superstore locations will close. He is principally concerned about this because he thinks that the major publishing companies will be seriously damaged. However in a number of exchanges with him, in the comments section of his blog, I was able to elicit the opinion that unusual, quirky, creative and talented independent booksellers might be able to continue to operate bookstores during the coming eBook revolution, even if the large general bookstore corporations were in dire straits.

My conclusion here is fairly obvious. I won the war!

Or, okay, we, the indies, won the war.

Some may say, “You didn’t win the war–Amazon.com and Apple and Google won the war.”

I disagree. I have been fighting the bookstore chains since 1985. So, if I have been fighting them, and if the chains go kerplunk, then, clearly, I won.

Thank you very much!

“Borders Group Inc. will sell its Paperchase Products Ltd. stationery unit to British private investment firm Primary Capital Ltd. for $31 million,” according to this report from the Associated Press. “Shares rose nearly 11 percent in midday trading.”

The sale is seen as “Borders Group’s latest to cut costs and improve profitability since financier Bennett LeBow invested $25 million in the retailer in May, becoming the company’s largest shareholder, chairman and CEO,” says the AP.

“The sale of our Paperchase business is another major step in strengthening our balance sheet __ and enables us to place an even greater focus on our financial and strategic initiatives, which are vital to a Borders turnaround and revitalization of the brand,” said Borders President Mike Edwards.

Borders will use the $25 million from the sale to pay down their outstanding $90 million term loan, when the deal closes next week.

Borders bought Paperchase, a UK based company, back in 2004. And though it has been a healthy business for Borders, it is not seen as part of their core business. The sale seemed like a likely way to streamline the company and reduce their debt.

They will continue to sell Paperchase’s products in their US stores.

Bennett Lebow

Borders seems to have dodged the bullet — again, sorta. With payback deadlines looming, the company yesterday announced (in this release) that “it will hold a special shareholder meeting” in September to vote on a proposal to let Bennett S. LeBow “acquire 35.1 million shares of the company’s common stock at a price of $2.25 per share.” LeBow, the corporate raider who made his money in the cigarette business (and his name by admitting then denying cigarettes were linked to cancer), now owns the biggest chunk of the company and acts as its CEO. He essentially kept Borders from going bankrupt in May when he invested $25 million in the company in return for 11,111,111 shares.

Perhaps more importantly for LeBow, the new proposal would also grant his LeBow Gamma Limited Partnership full approval over “appointing, terminating or transferring the Chief Executive Officer or Chief Financial Officer of the company, or any executive officer, or materially changing the terms and conditions of their employment, subject to certain exceptions.”

As a report at AnnArbor.com by Nathan Bromey observes, the terms were part of the deal struck with Lebow in May when he made his $25 million investment.

As Bromey notes, however, LeBow’s “positioning himself to gain more control of the Ann Arbor-based book store chain” does not necessarily bode well for the company: “Borders, which is struggling to return to profitability, faces a tenuous long-term future as an independent retailer.”

Tim Waterstone

Tim Waterstone, the man who founded Waterstone’s, England’s biggest bookstore chain, then sold it, then bought it back again, then sold it, then tried to buy it back again but was thwarted, is about to publish a novel that paints a “searing,” if “disguised,” portrait of some of the people he did business with.

As a Guardian story by Vanessa Thorpe reports, Waterstone’s novel, In For A Penny, In For A Pound …

… is a searing treatment of the world of books that contains recognisable caricatures of several figures in publishing, newspapers and high finance.

The key dramatis personae include an adulterous, elderly Labour politician; two rival brothers in a newspaper-owning dynasty; an Australian multimillionaire; an agony aunt who is also a successful novelist; and a brash book-buying chief at a chain of stores named “Waterwells”, likely to be an exaggerated version of Scott Pack, the Waterstone’s buyer who is now a well-known books blogger and editor at HarperCollins publishing.

Set in London in the 1990s, the saga tells of double-dealing, infidelity, deceit and hypocrisy. Waterstone, who made an unsuccessful attempt to buy back his ailing book chain four years ago, has hinted that the book is full of disguised portraits of people who have crossed his path.

It only makes sense, says Thorpe: “Commentators have often noted that his own life reads like a business thriller.”

The article makes no mention of whether Waterstone’s — the chain — will be carrying it or not when it goes on sale in September.

By then, however, Tim Waterstone may wish he hadn’t burned his bridges — a Daily Mail report says the current owner of his namesake company, HMV, is thinking about putting it up for sale again.

It wasn’t a great day for Barnes & Noble yesterday, although it wasn’t exactly a disaster, either. According to this Reuters wire story,the company “reported a net loss of $32.1 million, or 58 cents per share for it fiscal 2010 fourth quarter ended May 1, compared with a loss of $2.1 million, or 5 cents per share, a year earlier. Excluding one-time items, the bookseller lost 89 cents a share.”

Definitely not good. And yet there were some interesting numbers buried beneath the loss. For one thing, actual print book sales were up slightly, and “Overall fourth quarter sales rose 19 percent to $1.3 billion.” What’s more, sales at its website, BN.com, sales increased a wopping “51 percent to $141 million during the quarter from the year ago. It said it expected it website sales to rise 75 percent to $1 billion in fiscal 2011.”

Still more interestingly, “Barnes & Noble Chief Executive William Lynch, who oversaw the development of the Nook and was named CEO in March, said in a statement that the retailer’s share of the e-book market now surpasses its share of the retail book market.”

So why the loss? According to CFO Joseph Lombardi, “spending on its e-book business explains a large part of the loss in the fourth quarter.”

In fact, as a Publishers Weekly report notes, B&N board chairman Len Riggio says the quarterly report has inspired the company to make a more significant investment in its digital efforts, particularly the Nook. “The explosive growth of digital books has created the most compelling opportunity in Barnes & Noble’s history,” he says. “We have found that Barnes & Noble Members, our best customers, have increased their combined physical and digital spend with us by 17% since purchasing a NOOK, and by a phenomenal 70% in total units.”

As for online sales — always weak against arch-rival Amazon.com — BN.com is “having easily the best year in its history,” says PW, and projections are that the site “could hit sales of $1 billion this year.”

Of course, as this Forbes article notes, Amazon also seems on target for a billion dollar ebook business, especially after cutting the price of the Kindle, making still more ebooks available, and making the Kindle reader available yesterday on Android-based devices.

Publishers Marketplace yesterday linked to the troubled Borders book chain’s most recent 8-K SEC filing, which discloses the company’s executive salaries.

According to the filing Thomas D. Carney, executive vice president, general counsel and secretary, got a raise and is now making $450,000 a year. Mark R. Bierley, who was recently promoted to chief operating officer, also got a raise and is now getting $600,000 a year. The salary of Michael  J. Edwards, president of the company and chief executive officer, is holding steady at $750,000 a year. All also receive generous stock options, which are detailed in the filing. This comes just months after news (covered here on MobyLives) that the company paid nearly $1 million to two departing executives.

It’s one of the most secretive and elite groups in the world, and the subject of some equally extreme conspiracy theories: the Bilderberg Group, with a membership including heads of state such as King Juan Carlos of Spain, titans of industry and banking such as Bill Gates and David Rockefeller, and war criminals such as Henry Kissinger.

Now, Canadian newspapers are atwitter about the fact that Indigo Books CEO Heather Reisman was “among the delegates invited to the Bilderberg 2010 conference in Spain last weekend,” as a Winnipeg Free Press story reported.

And that’s all they know.

Borders Australia has tossed down the gauntlet: The company has announced that it will sell all its books cheaper than Amazon.com, and to back up the guarantee, it will refund an amount more than the difference if customers do indeed find a book cheaper on Amazon, .

According to an itnews report,

Dave Fenlon CEO of Borders Australia parent company REDgroup retail said Borders would offer a price guarantee that printed books would always be “cheaper on Borders Australia online than on Amazon.com”, which resolves the anomaly of printed books being cheaper to buy online from the USA than within Australia.

To mitigate the price of books fluctuating constantly with currency movements, Fenlon said his company would refund the difference plus 10 percent if an Australian customer finds a book sold cheaper on Amazon.com (inclusive of freight costs) compared to Borders Australia.

A Sydney Morning Herald report calls it “war,” and says, “Borders Australia online said its price guarantee … signals a new era in the way Australian book sellers compete in the global online market.”

Heather Reisman

Despite rumors that have been circulating to the contrary — see the earlier MobyLives report — Heather Reisman, owner of Indigo Books & Music, Canada’s biggest book retailer, says she has no intention of selling the business.

Reisman made the statement during an interview with the Financial Post, during an exchange about the impact of Amazon.com being allowed to open a distribution center in Canada despite having no Canadian ownership:

Now that Amazon will be allowed to have its own distribution centre here, do you believe Ottawa should ease foreign ownership legislation in a way that would allow you to enter into international partnerships?

A: Amazon had a full-on distribution centre here before, but it was run by Canada Post. The change is they are going to run it themselves. In my opinion, once the government [in 2002] allowed Amazon to operate 100% as a major bookseller in Canada with no Canadian ownership, they were de facto saying that they believe in this day and age that you do not have to be Canadian to own a book-retailing company [in Canada].

Q: Do you intend to take that issue up with Industry Canada? How is it that Kobo can have international partners with a substantial stake?

A: I don’t have any reason to take it up because I am not looking at selling the Indigo business. Our Kobo business is a global business. But I think the government realizes that you cannot put legislation on a digital business - what are you going to do? You just can’t.

There is a certain irony nonetheless to the Amazon deal for Reisman — as her interviewer, Hollie Shaw, observes, years ago Reisman was tapped to head up the Borders chain when it started a Canadian division … “but was thwarted in the mid-1990s by Industry Canada’s restrictions on foreign ownership of booksellers.”

There’s further irony in the fact that Reisman has now partnered with Borders on the Kobo, the company’s ereader device — which, by the way, is looking like big business indeed for Indigo, set to offer “a book catalogue in 180 languages, and offers more than two million e-books for sale and an additional 1.8 million titles available for free download.” As to how it will compete with huge players such as Amazon’s Kindle and Apple’s iPad, Reisman points to a very persuasive price point: $149.99, less than half the price of the nearest competitor, the Kindle.

A report from a tech magazine in Taipei, Digitimes, says that as of March, manufacturers there are shipping more Nook Ereaders to Barnes & Noble than they are Kindles to Amazon.

According to the report, “demand for nook was picking up,” and it “accounted for 53% of e-book readers shipped to US vendors last month.”

The magazine attributes this “partly to consumers’ interest in new products, as Amazon’s Kindle has already been on the market for some time,” and partly to B&N’s “extra competitiveness in its own retail outlets across the US.”

Which is why, of course, Amazon cut a deal last week with Target, as a previous MobyLives report noted.