US Book Retail Industry

An Analysis

Publication Date	October 2006
Publisher	RocSearch
Product Type	Report
Pages	49
ISBN Number	not applicable
Product Code	ROC00166

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Summary

Key categories of book retailers in the US include superstore chains (e.g. Borders Group, Barnes and Noble), online retailers (e.g. Amazon), independent book stores, and mass merchandisers (e.g. Wal-Mart, Target). For the mass merchandisers, books are just another product category, while independent stores lack the scale to compete against large superstore chains who are 'pure' book retailers with a nationwide presence. Online sales, though it has been rising, is much small compared to the total sales of superstores. There are about xxx bookstores across the US, with consolidated sales of over US$xxx billion. The superstores in the US have raised their market share by a cumulative annual growth rate (CAGR) of over xx% during 1993 to 2005. The three superstore chains recorded a xx% sales increase in FY 2005-06, total sales for the year nearing US$xxx billion.

The report analyzes the industry structure, the trends and challenges in the environment faced by the industry, and the various players in the market. The performance of the superstore chains has been analyzed under sales, inventory, space, and stock management categories. In the context of this industry dynamics, the report focuses on the superstores. There are three key book superstore chains in the US, namely, Barnes & Noble (BKS), Borders Group (BGP), and Books-A-Million (BAM).

Content

1. Industry Overview
- 1.1 US Retail Book Industry Structure
- The industry consists of businesses primarily engaged in the retailing of new books, newspapers, magazines, and other periodicals. This industry is part of the retail trade sector in the US.
  - 1.1.1 Pure Play Superstore Chains
- Pure play or brick-and-mortar-type retailers are those that retail books at store chains (popularly known as superstores). This concept had started in the 1960s with the emergence of a number of bookselling chains, typically featuring small shops in suburban shopping malls.
  - 1.1.2 Mass Merchandisers
- Mass merchandisers are primarily discount retailers, for instance Target, Costco, and Wal-Mart. Though these retailers have scale and wide presence, they do not differentiate books as a separate retailed product category.
  - 1.1.3 Independent Bookstores
- Spread across the country, these stores cater to diverse reading interests and promote reading habits in the local community.
  - 1.1.4 E-Tailers
- E-tailers are retailers selling books online (on the Internet).
- 1.2 Trends and Challenges
  - 1.2.1 Trends
- Sales Experience a Seasonal Peak
- Bestselling Titles Drive Traffic and Boost Sales
- Online Shopping Getting Popular
- Consumer Book Market Growing
  - 1.2.2 Challenges
- Varied Sales Channels Increasing Competition
- Leisure Options Growing
- Piracy A Troublesome Factor
- Difficulty in Estimating Demand for Books
2. Competitive Landscape
- National chains of physical stores and superstores have the largest share of revenue from book sales (refer to Figure 1.1), and primarily consist of three leading players, namely, Barnes & Noble, Borders Group, and Books-A-Million.
- 2.1 Barnes & Noble
- Barnes & Noble, Inc. (Barnes & Noble) was incorporated in 1986 (refer to Table 2.3).
  - 2.1.1 Sales and Income Analysis
- The Q206 earnings rose 23% year-over-year, as lower costs of goods and rent helped offset declining sales. In Q206, net income grew to US$16.6 million, from US$13.5 million in Q205.
  - 2.1.2 Inventory Management Analysis
- Barnes & Noble has brought down its own inventory from a high of US$685 million in 2002 to US$485 million in 2005, a drop of around 30% (refer to Figure 2.8).
  - 2.1.3 Store Space Utilization Analysis
- The opening of 27 new Barnes & Noble stores and closing down of 36 B. Dalton stores in 2005-06 has resulted in the company increasing its total space for retailing books by 3.1% CAGR over 2001-2005 (refer to Figure 2.13).
  - 2.1.4 Stock Market Performance Analysis
- The price earning multiple of the company (16.3, shown in Figure 2.17) is in line with industry trend, but less than that of its competitor Books-A-Million.
- 2.2 Borders Group
- Borders Group, Inc., traded as BGP on the NYSE, is the largest bookseller in the US after Barnes & Noble, Inc.
  - 2.2.1 Sales and Income Analysis
- In 2005-06, consolidated sales increased by US$151.2 million, or 3.9%, to US$4.03 billion from US$3.88 billion in 2004-05.
  - 2.2.2 Inventory Management Analysis
- Owned inventory is amongst the highest within its peer group.
- From 2001 to 2005, the level of owned inventory has increased by a CAGR of 8.4% (refer to Figure 2.27).
  - 2.2.3 Store Space Utilization Analysis
- The total retail space with Borders Group has increased at 4.3% CAGR over 2001-2005 (refer to Figure 2.31).
  - 2.2.4 Stock Market Performance Analysis
- Almost similar to the PE multiple of Barnes & Noble, the price earning multiple for Borders Group was 16.6 (refer to Figure 2.36).
- 2.3 Books-A-Million
- Books-A-Million Inc. was founded in 1917 and is based out of Birmingham, Alabama (refer to Table 2.7).
  - 2.3.1 Sales and Income Analysis
- In 2005-06, consolidated net sales increased 6.3% or US$29.7 million to reach a total of US$503.8 million from US$474.1 million in 2004-05 (refer to Table 2.8).
  - 2.3.2 Inventory Management Analysis
- The level of owned inventory is touching the pre-2004 levels, rising year-on-year by over 40% in 2005-06 (refer to Figure 2.45).
  - 2.3.3 Store Space Utilization Analysis
- Seven stores were opened, eight closed, and three stores were relocated by Books-A-Million in 2005-06. In the same year, 16 stores were remodeled, taking the total stores remodeled to approximately 66%.
  - 2.3.4 Stock Market Performance Analysis
- The performance of the stock of the company has been better than its competitors. The highest PE multiple, 19.7, is more than those of its peers, Barnes & Noble and Borders Group (refer to Figure 2.49).

Appendix
Appendix 1 Industry Association
List of Tables/Figures
Figure 1.1 US Consumer Book Industry Revenue (by Channel) (1993 vs. 2005)
Figure 1.2 Bookstores in the US in 2005 (by Type of Books)
Figure 1.3 US Bookstore Sales (2005-06)
Figure 1.4 Monthly Average Bookstore Sales (2005)
Figure 1.5 Worldwide Online Shopping (2004 vs. 2007)
Figure 1.6 Consumer Spending on Books in the US (2003 vs. 2008)
Figure 2.0 US Bookstore Sales (2005)
Figure 2.1 No. of Stores of Barnes & Noble, Inc. (2001-05)
Figure 2.2 Bookstore Brands of Barnes & Noble, Inc. (as on Jan 28, 2006)
Figure 2.3 Barnes & Noble Sales Revenue (2005-06)
Figure 2.3 Barnes & Noble Sales Revenue (2005-06)
Figure 2.4 Sales Revenue Growth of Barnes & Noble (2003-05)
Figure 2.5 Gross Margin Trend of Barnes & Noble (2003-05)
Figure 2.6 Operating Margin Trend of Barnes & Noble (2003-05)
Figure 2.7 Net Margin Trend of Barnes & Noble (2003-05)
Figure 2.8 Owned Inventory Trend of Barnes & Noble (2001-05)
Figure 2.9 GMROOI Trend of Barnes & Noble (2001-05)
Figure 2.10 Payable Days Trend of Barnes & Noble (2001-05)
Figure 2.11 Inventory Turnover Trend of Barnes & Noble (2001-05)
Figure 2.12 Leveraged Inventory Trend of Barnes & Noble (2001-05)
Figure 2.13 Total Retail Space of Barnes & Noble (2001-05)
Figure 2.14 Avg. Sales per Store of Barnes & Noble (2001-05)
Figure 2.15 Sales/sq. ft. of Barnes & Noble (2001-05)
Figure 2.16 Gross Margin Return on Space of Barnes & Noble (2001-05)
Figure 2.17 Price Multiples of Barnes & Noble Share
Figure 2.18 52 Weeks Stock Performance of Barnes & Noble (Aug 05-Aug 06)
Figure 2.19 No. of Stores of Borders Group (2001-05)
Figure 2.20 Bookstore Brands of Borders Group (as on Jan 28, 2006)
Figure 2.21 International Stores of Borders Group
Figure 2.22 Borders Group Sales Revenue (2005-06)
Figure 2.23 Sales Revenue Growth of Borders Group (2003-05)
Figure 2.24 Gross Margin Trend of Borders Group (2003-05)
Figure 2.25 Operating Margin Trend of Borders Group (2003-05)
Figure 2.26 Net Margin Trend of Borders Group (2003-05)
Figure 2.27 Owned Inventory Trend of Borders Group (2001-05)
Figure 2.28 GMROOI Trend of Borders Group (2001-05)
Figure 2.29 Payable Days Trend of Borders Group (2001-05)
Figure 2.30 Inventory Turnover & Leveraged Inventory Trend of Borders Group (2001-05)
Figure 2.31 Total Retail Space of Borders Group (2001-05)
Figure 2.32 Avg. Sales per Store of Borders Group (2001-05)
Figure 2.33 Sales/sq. ft. of Borders Group (2001-05)
Figure 2.34 Impact of Remodeling Stores
Figure 2.35 Gross Margin Return on Space of Borders Group (2001-05)
Figure 2.36 Price Multiples of Borders Group Share
Figure 2.37 52 Weeks Stock Performance of Borders Group (Aug 05-Aug 06)
Figure 2.38 No. of Stores of Books-A-Million (2001-05)
Figure 2.39 Bookstore Brands of Books-A-Million (as on Jan 28, 2006)
Figure 2.40 Books-A-Million Sales Revenue (2005-06)
Figure 2.41 Sales Revenue Growth of Books-A-Million (2003-05)
Figure 2.42 Gross Margin Trends of Books-A-Million (2003-05)
Figure 2.43 Operating Margin Trend of Books-A-Million (2003-05)
Figure 2.44 Net Margin Trends of Books-A-Million (2003-05)
Figure 2.45 Owned Inventory Trends of Books-A-Million (2001-05)
Figure 2.46 GMROOI Trends of Books-A-Million (2001-05)
Figure 2.47 Payable Days Trend of Books-A-Million (2001-05)
Figure 2.48 Average Sales per Store of Books-A-Million (2001-05)
Figure 2.49 Price Multiples of Books-A-Million Shares
Figure 2.50 52 Weeks Stock Performance of Books-A-Million (Aug 05-Aug 06)
Table 2.1 Bookstore Chains Sales Revenue (FY2004-05 vs. FY2005-06)
Table 2.2 Competitive Positioning
Table 2.3 Key Facts on Barnes & Noble
Table 2.4 Barnes & Noble Sales Revenue (FY2004-05 vs. FY2005-06)
Table 2.5 Key Facts on Borders Group
Table 2.6 Borders Group Sales Revenue (FY2004-05 vs. FY2005-06)
Table 2.7 Key Facts on Books-A-Million
Table 2.8 Books-A-Million Sales Revenue (FY2004-05 vs. FY2005-06)