Barnes & Noble, Hurt By Kindle, Offers Incentive

There are many estimates of the size of the e-reader market and which companies have the most market share. Amazon.com (NASDAQ: AMZN) claims it has sold “millions of Kindles” and that the device is the most popular item on its well-visited e-commerce site.

Most researchers who cover the e-reader market say that Amazon has a least a 60% share, followed by Sony’s (NYSE: SNE) product and then the Barnes & Noble (NYSE:BKS) Nook. The trouble with the data is that the industry is still trying to decide what is an e-reader and if the Apple (NYSE: AAPL) iPad should be included in the category.Much of Barnes & Noble’s future is based on its e-reader and e-book initiatives. Sales at brick-and-mortar book stores, like all other retail physical locations, are being siphoned off by the internet. Barnes & Noble may face a future not unlike Blockbuster’s, one in which store sales have begun to become obsolete.

Ron Burkle’s Yucaipa investment fund has taken a position in the book retailer and is agitating for changes in the way that the company does business. Time is running out at Barnes & Noble.

To promote sales of its Nook, Barnes & Noble will give away a $50 gift certificate. The certificate does not really cost the company that much because it marks up the products that customers buy, but it is an admission that the Nook cannot stand on its own as it competes with the Kindle which has gone on sale at Target (NYSE: TGT) stores.

The Kindle and Nook are each priced at $259 and Amazon.com does not show any sign of reducing its price. If anything, it is using its lead in the sector to hold its price and its gross margins. The Kindle produces more than revenue for Amazon. It produces earnings.

Barnes & Noble may have no choice other than to offer incentives. It cannot afford to fall behind in the race for second place in the e-reader business behind the Kindle. If it does, Burkle’s job becomes much easier.

Douglas A. McIntyre

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