The Stationers Guild

Today as I was watching CNBC, financial analysts were commenting on the surging IPO (Initial Public Offering) share price of LinkedIn, a business social media website.   The initial offering of $45 a share suggested a market valuation of some $4 billion.  Shortly after the IPO, the share price almost tripled and has now settled back into the mid $90s.  This indicates that LinkedIn is valued by the market at some somewhere north of $8 billion.

Contrast this with the offer of Liberty Media to acquire Barnes & Noble for just over $1 billion.    Barnes & Noble has 705 stores across the United States and some 35,000 employees.  It has been looking for a buyer since August of 2010 and many believed that no one would step up to the table until Liberty’s most recent offer.  By comparison, LinkedIn has around 1,000 employees and operates from one location in Mountain View, California.

What is one to make of these two news events?  Is LinkedIn really worth $8 billion and, if so, what does it say about the value of retail bookstores that are being impacted by the public acceptance of digital books?  More importantly, what does it mean to commercial real estate values, employment and retail businesses that rely on the physical movement of goods and services?  What does this news portend for property tax revenue for local governments across the United States?

I don’t know the answers to these questions and am surprised that none of the financial analysts or news media pundits have addressed the long term implications of these changes.    Clearly, the impact of digital efficiencies will have a marked impact on our communities since less storefront properties are required to “sell” physical products.  It is difficult to believe that new restaurants, banks and clothing boutiques can replace stores that have been vacated by traditional businesses that were vital  to one’s sense of community.   I am not sure that people with lattes in Starbucks on their iPhones, iPads, Nooks and Kindles and interacting with their digital community  is quite the same as chatting with friends or colleagues at the local diner or coffee shop.  Do you?

Like many others, I am not sure where this digital revolution is headed, but I don’t think things will be quite the same for communities across the United States.  We need to rethink town planning with an eye to the changes created by this digital revolution.  Communities that continue to base town planning around the automobile, FAR (floor to area ratio) and antiquated zoning regulations will soon be catering to vacant storefronts and wondering what went wrong.

Richard W. May
Therese Saint Clair

Discounting has always been a source of conflict within the stationery industry.   Many see it as a normal competitive business practice, while others view it as irresponsible behavior that does not properly reflect the appropriate “value” of the product or service provided.   This is clearly a very difficult concept to get your hands around and, I suspect, that there is no clear consensus on how to enforce (assuming it is needed) ”fair and reasonable” pricing to protect a brand.    While “pricing competitiveness”  is an important component of discussion on discounting, the subject has ramifications that have a huge impact on business in general and far-reaching but less well understood social consequences.

Rather than discuss this in a conceptual framework, I think it is useful to highlight some of the radical changes that are occurring in the publishing industry.    As we all know, the newspaper industry is imploding on itself as print advertising revenue is displaced by online advertising and cable TV.  Warren Buffet remarked that with “news” content distributed free (or nearly free) over the Internet it is difficult to build a convincing business case for the survivability of the newspaper industry.  I tend to agree with him.

Similarly, with price wars heating up in the book publishing industry and the growing acceptance of downloading and reading books digitally it would appear that a similar revolution is taking place in the book publishing industry.  Barnes & Noble has put itself up for sale and I suspect that the days of “print publishing” are numbered.    Certainly, there is a compelling case to be able to access any book (whether in print or not) immediately online; however, some of us still prefer the touch and feel of paper to back-lit digital readers.

Regardless of how we feel about these changes, change is coming and it is being driven by a more efficient and less-costly distribution system.  In effect, while you may prefer to read a print version of the New York Times with your morning coffee and pop down to the library to check out a book, it seems likely that these everyday rituals will soon be displaced by something quite different.  Some of us may find the transition easy, but others less so.   For me, it is difficult to imagine the beautiful Barnes and Noble bookstore in Union Square (NYC) turned into a warehouse to sell third-world arts and crafts.  And what about the employees, the editors and publishers?  What will become of them in this brave new world?  Is Walmart hiring?

Now to a practical case.  Our store, like many stationery stores, carries Filofax.  Yes, not everybody has migrated to an iPhone or Blackberry.   For several years, I have been following the evolution of Filofax to determine how they intend to deal with the digital assault on their dated merchandise.  The first thing Filofax USA did was to setup a rather cheap Yahoo online store some years ago to sell their merchandise directly to the public.  The website is far better today, but in an effort to retain sales they began to sell their products to online discounters and now offer consumers special deals that their retail outlets can’t match.  In effect, Filofax is competing with their own retail outlets at terms and conditions not available to their retailers.  This creates an awkward situation for retailers who have been servicing an aging client base who still use the Filofax product.

My objective here is not to throw cold water on Filofax’s merchandising strategy, but to highlight how extraordinarily difficult it is for store-front dealers to retain a stiff upper lip as they are being systematically disintermediated by their suppliers.    I suspect that many retailers will soon decide that the level of customer maintenance to support the yearly agendas and refills doesn’t justify the time and money commitment.    It’s sad to tell your regular clients to shop online, but quite frankly it may be the best solution (at least over the short run) for the client, the retail store and for Filofax.

As boutique stores begin to shed lines and, perhaps, determine that it is no longer worth the effort to remain open, the entire commercial real estate landscape of towns will begin to change.  We are already witnessing this across large stretches of the United States.   The business centers of small towns will simply disappear, strip mall will be plowed under and vacancy rates are likely to sky rocket as the “fixed” infrastructure costs no longer justify selling products that are being systematically discounted by big box stores and online retailers.   Perhaps, these towns will evolve into something quite beautiful and unexpected, but I have my doubts. 

Richard W. May
Therese Saint Clair