Few businesses have been hit as hard as bookstores in recent years. What used to be a thriving industry has melted down to only a few very strong businesses, and none is stronger than Barnes & Noble, Inc. (NYSE: BKS). While other companies like Borders Group, Inc. (OTCMKTS: BGPIQ) were going out of business, Barnes & Noble was busy creating solutions and expanding its business to keep up with modern times. This is no more clearly illustrated than the company's quick uptake of e-reader technology.
Barnes & Noble's answer to other e-readers out on the market was to produce its own, the Nook. There are multiple versions of the Nook and Microsoft (NASDAQ: MSFT) even invested $300 million to purchase 17.6 percent of the Nook business. Even though Nook has not done particularly well compared to the other e-readers on the market, Microsoft is considering upping their investment further.
With so many bookstores going out of business in recent years it's fair to ask if physical bookstores can even survive in this current environment. Barnes & Noble and Books-A-Million, Inc. (NASDAQ: BAMM) both offer some hope for this type of business model. Even though Barnes & Noble integrated the Nook, total Nook sales only account for around 11 percent of their overall sales. Between the Barnes & Noble's standard book stores that earn 65 percent of the company's revenue and college bookstores that earn 24 percent of the company's revenue, e-book sales are not playing a major role in the company. Books-A-Million is also a good sign that brick and mortar bookstores can still survive, because it doesn't deal in e-books at all. Even though the company hasn't exhibited growth in the past few years, it hasn't seen many losses either. The company has been hovering around the $500 million mark each year for over a decade now.
Barnes and Noble stock has been dipping lately, but the company will likely take a similar strategy to Best Buy Co., Inc. (NYSE: BBY). As soon as they start trimming unsuccessful stores and cutting away unused square footage, they should be able to become more profitable. Barnes and Noble can't continue being a superpower like it used to be, but with smart cutbacks it can continue to be successful and with a little more development in Nook it may even be able to experience increasing growth too.
With its leading position as a college bookstore and with Microsoft backing the Nook, there is value in Barnes and Noble at these low levels. Like many an industry before it, publishing is down but not out and the industry is sure to survive, albeit at a lower, more consolidated level. If you have room for a higher risk investment it wouldn't be a bad idea to pick up some stock from one of the last remaining book companies.