E-Books: Harbinger of Death to the Bookstore

The Wall Street Journal ("Grishman is Close to an E-Book Deal") reported today that John Grisham is close to signing an agreement with Random House that would make his books available on e-readers. As one of the most prolific and well-known authors over the last decade, this serves as a big step in validating the importance of the e-reader trend (and follows one day after Stephen King announced he would make a book initially available exclusively on Amazon’s Kindle). Currently, industry estimates suggest that less than 1% of book sales are made through e-readers. However, as authors continue to embrace the inevitably of a digital world, I suspect that we will see a significant ramp up in this percentage (not unlike what swept through the online music world, where Apple is now the largest “retailer” of music). Rather than express a view that Amazon, Sony, or some other company linked to e-readers will win in this new world, I feel more comfortable calling out the obvious losers. As a long-term short, I have to believe that Barnes & Noble (BKS) and Borders (BGP) will face significant secular pressures as e-readers become more ubiquitous. Just as no pure play big-box music retailer exists today, I am hard-pressed to envision a world where there are 50,000 square foot stores selling primarily books. The bricks and mortar bookstore model has been under pressure for some time; with the introduction of the new Kindle and several future products in the works, the next few years will likely not be kind to BKS and BGP.