I recently sold half of my position in Borders Group (BGP) after sticking out its near annihilation in Q1 of this year. Why? Trends. There are two new trends and Borders is not at the head of either of them....
I own a Blackberry and have started listening to books on it while I do research and blog late at night. The #1 app for the Blackberry to do this is from Audible.com, owned by Amazon (NASDAQ:AMZN). Being a Borders shareholder and a team player I of course looked there first but was unable to find the ability to buy a title on Borders.com and then listen to it on my Blackberry.
Now, it may be possible to do, but it was not readily apparent so either it does not exist or it's hidden. Following my "I'm not that different than most folks" mantra I have to think scores of other Blackberry users are doing the same thing and Borders is not capturing that crowd.
Another reason is eBooks. Amazon (AMZN) and its Kindle are clearly #1 in this very rapidly growing category. But, with the growth there, a strong #2 can do very well especially if they have the option to combine it with an actual bookstore to capture all audiences.
Borders has the Sony (NYSE:SNE) reader and an eBook section on its website. They were by default #2 but failed to capitalize on that standing and now have this:
Barnes & Noble (NYSE:BKS) and AT&T (NYSE:T) already went ahead and offered free WiFi to iPhone users (and everyone else, albeit inadvertently) last year, and it's now finally gone and given up on those pesky subscription fees altogether. As the pair of companies jointly announced today, that new and welcome change is now already in place at all Barnes & Noble stores in the US that offer WiFi, and the bookstore is not-at-all-coincidentally taking advantage of the opportunity to promote its recently launched eBookstore, to say nothing of its forthcoming e-book reader. Last we heard, they still have actual books and stuff there, too.
In the release Barnes & Noble said:
Customers Can Download Barnes & Noble Free Apps and Get Access to the World’s Largest eBookstore -- Exclusive Content, Customer Reviews, Information about In-Store Events, Locate a Store, and Much More..
In short, Borders sat back while BKS passed them in that category. Again there is no apparent eBook store on the Borders site, so it would appear this medium is not a huge category.
What recently was the #1 iPhone free app? The Barnes and Noble app. Barnes and Noble has figured out the way it would seem to tie the eBook / online / smart phone / book store crowd together.
Borders? Nothing. Now again Borders may have these items out there, but if they do, they have done an abysmal job promoting them and it is costing them.
What to do then? Borders is well on its way to fixing its financial house and that ought to propel shares back above an area I need to eek out a small profit on what I have left for my efforts there. After that, I'm not so sure.
Remember last summer when it was rumored BKS was looking at buying BGP ? Maybe this was the reason for passing, they had plans to beat them rather than join them...
This goes to show why you just can't buy cheap and ignore. You have to follow the business environment surrounding what you own. If it changes negatively and in my opinion Borders has, then you must re-evaluate your thesis. While I will most likely not lose any money (most likely make 5%-10%) on Borders, the big opportunity in it is fading and I feel I have far better options elsewhere.
Disclosure: Long BGP