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Rethinking the box: What is a big-box bookstore worth?

filed under , 25 August 2010, 12:29 by

OK, Internet. You’ve won. No one is going to buy physical books anymore, and even if they do they’re not going to do it from a bookstore — that’s positively medieval. Nope, might as well shut everything down now.

##

How much are the books worth?

I have no experience with liquidating the inventory of a closing bookstore, and quite sincerely hope to never know exactly what that’s like. However, at Big Box Books we do run clearance sales twice a year (pre-holiday and post-holiday, effectively: making shelf space for new December titles & product – and then, in January, selling the crap that seemed like a good idea at the time but just sat there for two months during our busiest 10 weeks of retail.)

Clearance looks something like this (assuming an average unit price of $10)

  • 10% of the product sells when marked down to .75 of list price ($7.50)
  • 20% sells at .50 of list price ($5.00)
  • 30% sells at $2
  • 40% sells at $1 — or wouldn’t sell at any price.

For the sake of math, let’s say 30% sells at a dollar and I end up throwing away 10% of the merch because it quite honestly was crap.

So, um… let me grab a calculator… (.1*7.5)+(.2*5)+(.3*2)+(.3*1)+(.1*0) = 26.5%

If your average price is $10 a unit and using the clearance regime described above and assuming my assumptions are correct [heh.] one could recoup 25% of the ‘book’ value of inventory in an “everything must go!” sale — and both the percentage and dollar value could be quite a bit more, depending on the actual list price and the appeal of the merchandise.

and the rest?

Tables, chairs, bookshelves, other fixtures, registers & computers, office supplies: you’ll be lucky to get 10¢ on the dollar. If you have a coffee shop in your store, the single most valuable thing you own is your espresso machine – even used, these ain’t cheap, and there’s a market.

Still and all: 10¢ on the dollar

Leases are an expense as you are still contractually obligated to pay the rent even if you close. Bankruptcy is your option here, as [when done correctly] it will allow you to break contracts (including leases) and you can weasel out of other debts and obligations as well. In the following hypothetical-post-internet-bookstore-meltdown we’ll take bankruptcy as a given.

Property, however, assuming you own your storefront, rather than lease, is quite a bit more valuable. Even in a ‘must sell’ situation you can likely recover 50% of your investment.

##

so the year is 201X and All Books Are E- and I’m out of a job.

Sucks to be me.

But: what do we do with the $16.7 Billion book retail industry? [$16.7B in 2010; no telling what it actually is in 201X]

To rephrase the question: even if no one cares to buy the books anymore and we have to close, what is the bookstore worth?

Independents

The indy bookstores will either close quietly before the crash, or live on [potentially] forever as niche retailers of historic curiosities (“books”) — and possibly also as coffee shops/gathering places/community centers. [but that’s a different post]

Hastings

[remember the RocketBomber service mark “We reading boring corporate reports, So You Don’t Have To.”]

per SEC filings dated 2 Jun 2010

Selected Assets
Cash and cash equivalents: $4,620,000
Merchandise inventories, net: $152,804,000
Property, equipment and improvements: $45,616,000

Chief Liabilities
Trade accounts payable: $69,973,000
Accrued expenses and other liabilities: $26,177,000
Long term debt: $26,435,000

Total liabilities of $128.9 Million, negotiable in bankruptcy, post-abookalypse. Cash is cash, Merch nets 25¢ on the dollar in liquidation, and property is certainly worth quite a bit, even in a depressed real estate market. Hastings also has an advantage with their already eclectic product mix: they could drop books entirely and continue to adapt the other media sales (& which currently includes already-stocked used and rental product) and still make a go of it no matter what the retail position of books.

Say they had to make a graceful exit, however:

Hastings, 154 stores.
Book value of assets per store: $1,318,400
Liquidation value of assets per store: $426,100

Current share price/Market cap: $7.41/$68.9 Million
Liquidation value of assets per share: $7.05
Book value of assets per share: $21.83

One could say that $7.41 is a fair price, as Hastings’s property and standing inventory are worth more than that & one might hope to recoup up to 95% of the value of your stock even in a bankruptcy-and-fire-sale.

Books-a-Million

[per the 2010 annual report]

Selected Assets
Cash and cash equivalents: $6,602,000
Merchandise inventories: $201,510,000
Property, equipment and improvements: $53,141,000

Chief Liabilities
Trade accounts payable: $88,843,000
Accrued expenses and other liabilities: $51,553,000
Long term debt: $6,360,000

Books-a-Million, 223 stores.
Book value of assets per store: $1,171,538
Liquidation value of assets per store: $374,664

Current share price/Market cap: $5.75/$90.4 Million
Liquidation value of assets per share: $5.31
Book value of assets per share: $16.61

Books-a-Million, like Hastings, is ‘worth’ much more than it’s current stock price and even with property and inventory discounted in a clearance sale, one might hope to recoup 90-93% of one’s investment.

Borders

[I won’t be mean and point out that unlike the previous two cases Borders may in fact go out of business in the next year. Except I just did.]

[per the 2009 annual report]

Selected Assets
Cash and cash equivalents: $37,000,000
Merchandise inventories: $873,800,000
Property, equipment and improvements: $392,800,000

Chief Liabilities
Trade accounts payable: $350,800,000
Accrued expenses and other liabilities: $257,400,000
Short- & Long-term debt: $282,000,000

Borders is bigger, with more stores, and with more inventory/assets to borrow against. Borders is also a hybrid, given that they operate 511 superstores and 204 smaller stores under the Waldenbooks name (among others) but I’ll ignore the extra math for now:

Borders, 715 stores.
Book value of assets per store: $1,823,200
Liquidation value of assets per store: $580,200

Current share price/Market cap: $1.10/$70.9 Million
Liquidation value of assets per share: $7.47
Book value of assets per share: $21.56

Liabilities per share: $14.72

So Borders has enough assets to borrow against (as is demonstrated by their ability to acquire credit) but if push came to shove, the liquidation value of assets wouldn’t meet their current obligations, and a share-holder (pretty low down on the ol’ bankruptcy priority list) would be, in business terms, screwed. It’s fine if the overall economy and book retail specifically recovers — in fact, you’d stand to make a fine pile of cash off of that ballsy bet — but right now, Borders is probably fairly valued at $1: You’re just as likely to lose your shirt as see gains of 800-1000%.

Barnes & Noble

Selected Assets
Cash and cash equivalents: $60,965,000
Accounts Receivable: $106,576,000
Merchandise inventories: $1,370,111,000
Property, equipment and improvements: $812,034,000

Chief Liabilities
Trade accounts payable: $868,976,000
Accrued expenses and other liabilities: $755,432,000
Long-term debt: $260,400,000

Disclaimer: B&N is the big corporate entity that signs my [non-blog] paychecks, and in fact takes up 40+ hours of my personal time each and every week. Per current FTC regulations, I have to disclose this relationship, but I can also note here that all of my blog posts are independent, and are neither vetted through, submitted to, nor approved by my employer. I’m digging my own grave here, and proud to do so. Anyway— analysis:

B&N as a company also merits one more line-item under assets: as a publisher (Owner of Sterling Publishing and SparkNotes, among others) they also sell books to other booksellers. That’s the Accounts Receivable listing above; $106 Million is a small fraction of the overall sales ($5.8 Billion if memory serves) but a significant line item in this calculation.

B&N, 1357 stores
[720 Retail superstores plus 637 B&N College bookstores]
Book value of assets per store: $1,731,530
Liquidation value of assets per store: $974,430

Current share price/Market cap: $14.66/$862.89 Million
Liquidation value of assets per share: $15.56
Book value of assets per share: $38.11

Liabilities per share: $32.02

Once again, if the company goes under, the shareholders stand to get hosed.

But: a goodly chunk of that long term debt is owed to Len Riggio (B&N Chairman of the Board) who might just be willing to extend very favorable terms, and quite a few extensions; The book value of the company is still greater than the extant debt – if the company does go under at current stock prices investors would stand to make a buck or two, and it really is the abookalypse if B&N goes out of business.

##

contextual disclaimer: all numbers as posted above are just the value of inventory on shelves and do not reflect revenue that could possibly be gained by, oh, I don’t know, actually selling those books to people.

more standard disclaimer: numeric values and conclusions as posted above are not intended to constitute, or even masquerade as, legitimate investment advice. Take all actions on your own initiative and do your own research. If you still feel I’m to blame for your mistakes, well, I invite you to claim whatever you like and I’ll be happy to show up in court drunk as a sailor on leave, for as many days in a row as it takes, to make a mockery of you, and your case, and the proceedings in general such that no judge or jury could even imagine that I’d be a credible source for my own name and birthday, let alone investment ‘guidance’. If pressed, I might even be able to produce receipts and character witnesses to prove I’ve been drunk more-or-less continuously since 1996. You do not want to call me on this — or take the numbers posted above as any more than what they are: straight, sober reporting of the financial markets in this one niche market, with no returns on investment implied, imagined, impuned, impounded, implanted, implicated, impressed, impregned, imbibed, immanentized, immortalized or imbroglio-ed.

##

So what is a big-box bookstore worth?

at least $1 million, and closer to $1.5-$2 million.

If one wants to compete with the Box, this is your scale.

And if one is looking to step into book retail after the big boxes fail, this is your target: a $1 Million Dollar Store (sales or inventory, take your pick)

##

Rethinking the Box is a collection of ruminations on retail & bookselling, with an eye towards comics (as one goal of the exercise is to guage the viability of a graphic novel superstore).

Previously:
Study your History. Recognise your Motives. Location, Location, Location. Know your Customer Base, and your Staff. Find your Niche. Consider your Product Lines, Stock Your Shelves, Set your main-aisle displays, consider Alternative display strategies, take a second look at What the Customers Want and Why Even Annoying Customers are Important. Answer for yourself whether raw dollars or customer service is more important to your store, and its future. Stare again in dismay at the Profit Margins. Try calculating your upper-limit affordable rent and affordable salaries along with revenue from inventory (with a side of coffee) and compare your numbers to average industry per-storefront sales.

Chronologically: 123456789101112131415161718192021222324



Comment

  1. share prices as posted above are the price at close of markets Monday, 24 August.

    Comment by Matt Blind — 25 August 2010, 16:32 #

Commenting is closed for this article.



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