Barnes and Noble recently declared that they will stop paying a dividend to focus on building their e-book presence. Their main competitor for many years, Borders, has entered bankruptcy protection, and may not last the summer. Below I detail my analysis of the Five Forces Model for the book industry, particularly for Barnes and Noble.
Bargaining Power of Suppliers
Positive. As there are not that many national retail chains for books, and their are many publishers and writers, the retail outlets have a better bargaining position. There is evidence of this in the recent bankruptcy of Borders. Months before Borders entered bankruptcy, they changed the payment terms on their accounts payable to be very unfavorable to the publishers, and there was nothing the publishers could really do about it.
Threat of New Entrants
Mixed. This used to be very high, but the advent of the internet changed everything for this industry. Brick and mortar stores required a lot of capital, but Amazon has become successful without being so encumbered. However, now that Amazon has such brand recognition on the internet, it is difficult to see another internet rival appearing.
Rivalry
Negative. Amazon continue to amass profits and sells. Online power gives resellers access to new markets. Even Apple has entered the E-book market.
Substitutes
Negative. Throughout history we have read books for information and entertainment. Never before have we had so many options to provide for these needs.
Bargaining Power of Buyers
Negative. With the ability to buy from other readers, I can't remember the last time I bought a book new.
Overall, this is a poor industry. It will be interesting to see if Barnes and Noble can turn it around, I doubt that they can.
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