E-books Threaten Book Retailing, by Jeffrey A. Trachtenberg

The eclectic merchandise, which has nothing to do with books, may be a glimpse into the future of Barnes & Noble Inc., the nation's largest book chain.

For 40 years, Barnes & Noble has dominated bookstore retailing. In the 1970s it revolutionized publishing by championing discount hardcover best sellers. In the 1990s, it helped pioneer book superstores with selections so vast that they put many independent bookstores out of business.

Today it boasts 1,362 stores, including 719 superstores with 18.8 million square feet of retail space--the equivalent of 13 Yankee Stadiums.

But the digital revolution sweeping the media world is rewriting the rules of the book industry, upending the established players which have dominated for decades. Electronic books are still in their infancy, comprising an estimated 3% to 5% of the market today. But they are fast accelerating the decline of physical books, forcing retailers, publishers, authors and agents to reinvent their business models or be painfully crippled.

"By the end of 2012, digital books will be 20% to 25% of unit sales, and that's on the conservative side," predicts Mike Shatzkin, chief executive of the Idea Logical Co., publishing consultants. "Add in another 25% of units sold online, and roughly half of all unit sales will be on the Internet."

Nowhere is the e-book tidal wave hitting harder than at bricks-and-mortar book retailers. The competitive advantage Barnes & Noble spent decades amassing--offering an enormous selection of more than 150,000 books under one roof--was already under pressure from online booksellers.

It evaporated with the recent advent of e-bookstores, where readers can access millions of titles for e-reader devices.

Even more problematic for brick-and-mortar retailers is the math if sales of physical books rapidly decrease: Because e-books don't require paper, printing presses, storage space or delivery trucks, they typically sell for less than half the price of a hardcover book. If physical book sales decline precipitously, chain retailers won't have enough revenue to support all their stores.