From Chris Meadows at TeleRead:
I just ran across a CNBC piece on a potential Toys’R’Us bankruptcy filing. The toy retailer may not necessarily plan to go out of business, but a bankruptcy filing could allow it to restructure its massive load of debt so it can stay in operation.
At first glance, this doesn’t seem to have a whole lot to do with ebooks, but on a closer read, it’s really interesting to observe some of the parallels between Toys R Us’s situation and things that have been happening to bookstores over the last few years.
For example, there’s this paragraph:
A Toys R Us bankruptcy does not necessarily mean the company will close stores, and retailers such as Macy’s have operated through bankruptcy before. For the major toy companies, there may be vested interest in Toys R Us successfully coming out the other end of a debt restructuring.
. . . .
The CNBC piece goes on to say:
Beyond offering the toy companies a place to sell their products, the retailer often does so without marking their prices down as much as big box retailers like Target. The retailer’s vast space and toy-centered raison d’etre give toy companies a unique venue to sell their product.
“They’re the only true showroom the industry has,” said toy industry analyst Richard Gottlieb.
You could replace “toy companies” with “publishers” and “toy-centered” with “book-centered” and you’d perfectly describe the role of bookstore chains like Borders—and, for that matter, Barnes & Noble. The bookstores don’t mark their book prices down as much as big-box stores, but they have a much bigger selection. It’s that selection of books that people can look at and browse and flip through in person that publishers and their advocates bemoan losing as sales migrate more and more toward on-line. They’re also“the only true showroom the industry has,” if you’re talking about the publishing industry. Of course, Amazon can outdo both the toy stores and bookstores on both price and selection.
Another odd toys-to-books connection is that, elsewhere, the CNBC article mentions that another problem toy stores face is “children who increasingly prefer tablets to toys.” But the article never goes on to elaborate on that point, even though it entitled the whole article section “Tablets over toys.” (If you look elsewhere, though, you can find articles about research showing that kids are playing with tablets more than traditional toys—even as they seem to prefer to read books on paper rather than the screen.) Certainly tablets like the Fire 7 are getting cheap enough that they cost less than some children’s toys, and they do have a broader range of uses than an articulated chunk of plastic.
The piece does touch directly on Amazon, though, at the very end—when it discusses how toy companies could wean themselves away from dependence on Toys’R’Us by turning to alternative sales channels.
One of the quickest growing channels: Amazon. The e-retailer is the “beneficiary of [the] millennial parent,” said [Jefferies analyst Stephanie] Wissink, as Amazon is “quickly becoming the No. 2 toy retailer behind Wal-Mart.”
You would think, from the way the publishers allowed Borders to die and don’t seem to be doing a lot to try to save Barnes & Noble, that they should be trying to wean themselves over to alternate channels than big bookstore chains. The problem is, they have that love-hate relationship with Amazon, the mega-store that sells more than half of their books for them at the moment. The last thing they would want to do is give Jeff Bezos even more power.
The odd thing is that the CNBC article never directly touches on the way that Amazon’s ascendancy to “the No. 2 toy retailer” position might also be responsible for some of the financial troubles Toys R Us finds itself in.
Link to the rest at TeleRead
If anybody has any great ideas, I’d be interested in hearing them.
I’ve been asking about those ideas for years. I’m not smart enough to figure out how to beat such strong economic pressures. Most of the ideas seem to be along the lines of trying harder and recognizing the new paradigm.
The problem with ‘great’ ideas is they aren’t known to be ‘great’ – except in hindsight.
Which might just be why Amazon is always trying new (and sometimes nutty seeming) ideas. They drop the ones that don’t pan out and keep the ones that work (and will drop them when they stop working.)
Like a publisher publishing lots of books – every now and then one does much better than expected (which is why cutting back will kill them in the end – less likely they’ll publish that next best seller.)
Yes, I’m here. Bankruptcy is a tricky issue. The company going bankrupt screws the people who supplied them merchandise and gets paid ten cents on the dollar or some similar amount; and then is expcted to sell them that same merchandise again so that the store can reopen as usual. Tough position to be in. Borders went bankrupt because some of the creditors said enough was enough and the creditors didn’t see any light at the end of the tunnel in terms of getting paid back.
Toys R Us is one example and I’m afraid there are going to be more and more situations like this because of the Amazon effect. We had many electronic stores like The Wiz and Circuit City go under and only Best Buy is left, of any real size.
I’m not sure what the writer of the piece is suggesting publishers can do to help Barnes & Noble. You have to do the same for that channel of sale. If anybody has any great ideas, I’d be interested in hearing them. Of course this doesn’t mean that B&N would necessarily listen. Depends on how their management feels about the ideas.
I don’t think Toys R Us is going down because of the Amazon effect. It’s because they borrowed 6 billion dollars, and that much debt put them too close to the edge of what they can pay back.
Any company with too much debt is vulnerable to a chill in the air. Whether it’s a new competitor, a tech bubble, a sub-prime bubble, an earthquake in Kobe, or a hurricane in Texas, there’s always bumps. If you put yourself in a position where you can survive only if everything goes *perfect,* that’s just bad management.
Which, imo, is the real reason Borders went down as well.
I think that the 6 billion dollar debt is what put them over the edge, but it’s the amazon effect that has hurt their sales so dramatically. There aren’t too many retailers that aren’t claiming to be hurting because of the Amazon effect.
I did see an ad tonight from Ace Hardware trying to differentiate themselves, which is what the experts recommend to survive. If you buy your paint products at ACE and forget something or need more; they will drive the extra items over to your home at no charge. Adding more customer service and thus creating more value to the consumer. Interesting approach.
Chong Go, I learned from watching airlines that there are two ways to run a business: debt financing and equity financing.
Back in the glory days when deregulation had just kicked in and airlines were expanding and Boeing and Lockheed (remember them?) could not build planes fast enough, Braniff and Texas Air (Continental Airlines, Eastern Airlines, Frontier Airlines, Texas International Airlines) went all-in on debt financing. Their operations expanded exponentially.
American Airlines stuck with equity financing. They consolidated what they had and expanded slowly.
The wheel turned. As it always does.
Braniff and Texas Air are gone. American still flies.
There’s a lesson there.
And I have a sneaking suspicion that, at that level, the suppliers are frequently willing to shrug, say, “c’est la vie,” take a big tax write-off, and go right on with business as usual. Because they know that’s how it works, too, and there are frequently benefits from continuing to do business with that entity—especially once they’ve already declared bankruptcy once and can’t do so again for a while.
As for what the publishers could do to help B&N…I don’t know, maybe write off some of their debt so B&N can continue to function? Like those suppliers who shrug and go right on doing business with a bankrupt retailer, they might figure that it’s better to have that chain continue to exist than hold out for their pound of flesh and watch it go down the tubes altogether.
Sooner or later, the publishers are going to come to the point where the last huge chain bookstore supporting their print side faces having to go out of business. Might be a good idea for them to do whatever they can to try to put that day off as long as possible.
Not all suppliers are big conglomerates. Look at the trump bankruptcies in Atlantic City. Small vendors have been talking. Architects that made no money after spending a year on the job. There are hundreds of small publishers that would also go out of business if they had to write off what they were owed by a big retailer. When borders went under it cost publishers tens of millions of dollars.
And I have a sneaking suspicion that, at that level, the suppliers are frequently willing to shrug, say, “c’est la vie,” take a big tax write-off, and go right on with business as usual.
Whenever a business takes a tax loss, it takes an even bigger real loss.
“Hey, guys, let’s go lose a million dollars so we can avoid paying $350,000 in taxes.”
They may shrug, but it’s only when they are forced to accept there is no alternative.
Steve Zacharias, You here?
This is why I don’t get all weepy and moan about the loss of jobs at B&N or the loss of municipal tax revenues. It happens every day. EVERY. DAY.
When Worldcom went under, did Alabama lose jobs? Yeah. Lose tax revenue? Some, yeah. Is Alabama still there? Yeah.
When Enron went down, the suck was so great that it pulled down Arthur Andersen and dozens of local Houston companies with it. Did Houston lose jobs? Oh, yeah. Thousands. Did the city of Houston lose tax revenues? Lots. Is Houston still there? Well, I haven’t checked since Hurricane Harvey, but I am willing to bet that this time next year Houston once again be the city-in-the-swamp hellhole it has always been.
I had the pleasure to confer with a law professor from Japan who was in the United States to study American bankruptcy law. (Everybody comes to the US to figure out how to do bankruptcy. I have seen a couple of dozen legal scholars from Mongolian in a courtroom observing our practice. And Romanians and Estonians.) We were talking and sketching ideas on a white board, and I said to him, “All companies are mortal.” He nodded and wrote that down.
Will Toys R Us go under? Yeah. When? I don’t know.
Will B&N go under? Yeah. When? I don’t know.
Will Amazon go under? Someday. But today is not that day.
When Worldcom went under, I lost my job. 😛 But I’m still here.
(And several years later ended up working in the exact same building as when I’d worked at MCI, but for a different employer. Weird how that all works.)
Have Toys R Us thought about selling books, instead? Maybe kids’ books? Genius!
They do.
Have not read the article yet, but my first thought is “Why odd? Who hasn’t seen this coming for B&N or suspected trouble for Toys R Us?” But then I’m odd.
Well, the parallels are odd ones. And there are so many of them, in some ways it’s like you could search and replace “toys” to “books” and change it to an article about Barnes & Noble.
All cases are unique and very similar to others.