Barnes And Noble Speculation

The Barnes And Noble,Ron Burkle Yucaipa Proxy fight is generating novel like scenarios. Here is a link  which offers some fairly good background:

http://abcnews.go.com/Business/wireStory?id=11390345

So why would anyone, much less, Burkle and Yupica be interested in Barnes And Noble, especially now, the stock is down to an all time low ( See the chart below) and sales are are in what some may describe as a free fall due partly to the great recession, but mainly to Amazon, and on the horizon,Apple. True Barnes And Noblel has tried to compete and reverse the trend with B&N.com and it's own e-reader, but to date has not been able to keep pace with the Amazon and the Kindle revolution. Frankly it's just not their core business.

So the question remains, why would anyone acquire Barnes And Noble, more to the point why Yucaipa? After all weren't they burned just a few years ago with their entrance into the publishing and magazine and book distribution business ( Source Interlink bankruptcy)? Think of it, Barnes And Noble can be had for a bargain price,but would someone like Burkle be satisfied with an old economy brick and mortar chain store? Perhaps, but wouldn't it make sense that once the company gets beyond its current woes with new ownership, the next logical step would be merger or acquisition or an outright sale. Sell/merge to/with who? Why not Amazon? See their stock chart below:

An Amazon/B&N company would be the largest book seller in the world, not to mention magazines and newspapers. Throw in Kindel and the possibilities become endless, e-reader, brick and motor and e-tailing! Each "division" has the infrastructure in place and it could be easily integrated as one company. I like to think Mr. Burkel knows this, he certainly knows retailing and distribution and intimately knows Barnes And Nobel ( He and Mr. Riggio were major investors in Alliance Entertainment , a company merged in with Source Interlink). He knows the distribution and vendor end of the business. As a matter of fact Amazon would be able to gain access to those vendors and perhaps consolidate from the hundreds, perhaps thousands of suppliers they now deal with.

What about Borders? Well should the B&N deal fall through, what better "plan b"? The independent booksellers? Don't under estimate them, while they are sadly struggling they are a force to reckoned with. Does anyone remember their fierce opposition and subsequent pressure on the Justice Department which ended the Barnes And Nobel purchase of Ingram book distributors? Books-A-Million, perhaps ripe for acquisition? A season of mergers.

With all this in mind ( and mind you it's shear speculation) one can't help but think back to the disastrous AOL Time Warnner merger in the 90's.

What about Apple, the largest music retailer in the world, with B&N they could be the largest book seller. The scenarios are endless and I believe Mr. Burkel knows this.

Housing Part 2, Can we come back?

Mortgage applications rose to their highest levels in 15 months last week based mainly on refinancing. Sadly for local builders, applications for purchases were down 3.4%. Here is a link to the table/data:

http://www.reuters.com/article/idUSN1715642620100818

Below is a chart from a from a presentation I gave last week (different subject,how builders should take advantage of energy efficient incentives and consumer demands) , which shows that the refinancing phenomena was at its height, during the housing bubble. American consumers/homeowners,70% of us, during that time took almost 5 billion dollars a quarter out of the equity of their homes! Common sense dictates not all were spending on big screen TV's, SUV's etc. I contend a majority were refinancing as their ARM's were about to balloon to keep payments lower, or just taking advantage of the record low interest rates. I would also guess that many, possibly a majority were using equity as living expense. Wages during this time did not keep up with inflation ( that was masked by the massive draw on home equity). Some data may show that household income may have increased but one could argue that was a result of the two household income which became a necessity during the 90's. In fact employment and job creation remained stagnant during that time.

IF this hypothesis is true then the turn around we are all hoping for not only in the housing market but the economy as a whole will likely not be a turn around at all. During the next couple of days I am going to pull together the economic data to either support or disprove that hypotheses.

More to follow....

The Mgazine,Book and Newspaper Distribution Industry..A Thought

I came across a pretty good read concerning single copy sales ( newsstand) and the magazine and book distribution business from Folio. Here is the link:

http://www.foliomag.com/2010/no-cap-yet-newsstand-well

What strikes me is what is not mentioned, digital or the effect e-readers such as I Pad and Amazon/Kindel is having on distribution. I am convinced that the magazine,book and newspaper distribution industry is currently in the throws of classic "creative destruction". Much like the manufacturers of wagon wheels, ice boxes, radio tubes, etc..have gone through.

We need only to look at the music industry. Think 8-Track, casets and yes CD's. Physical distribution of content is becoming obsolete. Who would of thought that ten years ago  I-Tunes would be the largest retailer of music in the world. Just last month Amazon announced the sale of digital books has surpassed traditional printed books.

While that may seem dire, I contend it is just the opposite and represents great opportunity. Amazon and Apple will soon realize that it simply does not make good business sense to be dealing with hundreds perhaps thousands of publishers,authors and distributors. I would assume while both companies are large enough and technologically savoy enough to accommodate such relationships, the question remains why would they want to? Herein lies the opportunity, perhaps one of the major national distributors,or even wholesales approach Amazon,Apple etc, with the intention of becoming their exclusive distributor. YES, treat them just like a large retailer. Chances are both companies are already floating this idea around at least internally. My guess is they will emulate the book store model and deem five or six distributors as authorized distributors and all publishers, authors etc will have to deal with them.So why doesn't the industry "beat them to the punch" and pursue the concept with Apple and Amazon. A CO-OP perhaps ( ie: Ingram, Curtis, Source Interlink)

Think of the benefits, the only aspect of the business model for a distributor that changes is the physical distribution of product, marketing, sales, client relations and financial relations remain the same. Distributors are the experts, not Amazon, not Apple. Both those companie know that. Think of it as calling on a large Walmart.

Of course technology will need to improve to be more friendly to advertisers and to photo or art related titles, but that will come, not doubt soon.

Partner with Amazon and Apple for the benefit of all, makes sense to the distributors, publishers, authors and retailers. I think if the industry does not, they will be forced to in time or cut out completely.

Just a thought...

The Housing Market

I just completed some fairly extensive research concerning the housing market and residential construction. To be specific recent history and the possible reasons for its collapse. The data I have found was easy to access and the conclusions just as easy to reach. Some of it fascinating, some examples:


1) In 1990 the total amount of all mortgages in the USA totaled $500 billion, by 2007 that amount ballooned ( no pun intended) to 2.7 trillion!

2) Home ownership in a few short years (early 90's) shot up from 63% where it had lingered for decades to near 70%!

3) New home starts grew 91% from 1995 to 2005!

4) Average home sales price jumped from $263,000.00 in 1995 to $307,000.00 in 2005 a 47% increase.

With the construction industry responsible for 3.5% of the total labor market and a major contributor to our GDP, the question should be asked: Why didn't anyone see the inevitable? The answer is, many did. Not many headed their warnings. To be fair, there are numerous speeches, press releases, statements made by the Federal Reserve, economists, and industry associations extolling the virtues of home ownership, new and larger homes and that housing is a great investment and economically solid.

While the residential construction industry is currently in a depressed economic situation, it is certainly not all doom and gloom. In fact builders now know what the consumer wants in new homes as survey after survey has been conducted in the last few years. Builders know the consumer is demanding, smaller homes, more "green" options,energy efficient homes and more affordable homes. The demand has switched from aesthetic to functional. The problem remains however, while there might be buyers there are no loans to be made, certainly not pre construction loans. In addition unemployment while officially at 9.5% ( arguably near 18% counting EVERYONE) and massive "under employment" builders and our economy are in a holding pattern ( construction has led our nation out of most every economic crisis since the great depression) and perhaps worse, poised for another fall, the classic double dip.

While most economists agree government intervention in business is bad for business, in this, the greatest economic crisis since the great depression is a case where the exception NEEDS to be the rule. Government and the industry need to work together, in the form of additional tax credits, for building energy efficient homes ( actually expired in NOV,09), tax credits for buying new EenergySatr rated homes, reduction on the local level of impact fees and many many more collaborative efforts form both sides of the political aisle.

Until the unemployment crisis eases and banks start making good loans again builders need to prepare for the eventual turnaround by investing in green products, offering smaller energy efficient homes, becoming EnergyStar rated, becoming" the expert" on green and energy efficient building and partnering with the suppliers in the same mode.

More to follow........