How did Barnes & Noble Fall so Far so Fast?

How did Barnes & Noble fall so far so fast?

The giant bookstore chain, whose superstores once struck fear into the hearts of independent booksellers everywhere, put itself up for sale this month, rendering it the corporate equivalent of the remaindered books it sells at a discount.

The company said it made the move because its shares are undervalued, but to me there was an air of desperation about it.

The simple explanation for Barnes & Noble's decline is the Internet, which spawned Amazon.com, e-readers and digital books. But that didn't have to be the end for B&N, which had a dominant market position and should have out-Amazoned Amazon, leveraging its brand and innovating when it began marketing and selling books online.

I know exactly when B&N lost me as a customer. Some years ago, to compete with Amazon, B&N began offering free same-day delivery in Manhattan if you placed your order over the Internet by 11 a.m. I did so several times -- and not once did the books arrive when promised. Everything I have ordered from Amazon has arrived on time or earlier. Then came Amazon's game-changing3 Kindle, and instant delivery. Nothing I've read about B&N's belated rival
Nook has tempted me to try it.

My hunch is that B&N never really embraced the Internet or e-books, tied as it was to the old-fashioned world of physical books and stores. As B&N focused on managing decline, a much more nimble Amazon could concentrate exclusively on the new world it was forming. B&N needed to destroy its business model to prevail. Now it is probably too late. There is a lesson

for all businesses here.

Now I'm using Apple's iPad, and while I predicted the demise of the Kindle in a previous column, I may have been premature. I like reading on the iPad, especially in bed at night and in other places where the device's back-lighting comes in handy. So far, it hasn't bothered my eyes at all, unlike the indistinct pages of the Kindle. But the Kindle is better outdoors.

I also suspect there may be a place for a dedicated reading device. When I open the iPad to read a book, I'm confronted with a dizzying array of options, from the latest episode of "Mad Men" to the current action in Asian stock markets. Is this information overload? Too often I find myself

distracted by information I don't really need. bks

I can't say I miss physical books. My shelves are already groaning and can't accommodate any more. I do miss the bookstore I grew up with in the Midwest and the small stores that once dotted my neighborhood. Could B&N's decline pave the way for the return of the independent bookseller?

Despite the array of suggestions tailored to my interests (or at least to my recent purchases) that appear when I open the Amazon site, I still yearn for someone intelligent who can recommend a good book. I enjoy the community of other people who love books. I like talking to someone both before buying a book and after reading it. I think independent bookstores may be able to provide these services even while selling over the Internet. Their overhead should be lower, since they don't need to carry huge inventories of physical books and don't need huge retail spaces. Maybe I'm naive, but I'd like to think there are new opportunities for booksellers.

As for B&N, I give them credit for democratizing books, boosting sales and getting people to read. As an author, I feel I've benefited from their aggressive marketing and in-store promotions. But I feel that world already has disappeared. Maybe dissident B&N shareholder Ron Burkle has some bold ideas for reinventing book retailing. If so, more power to him. But as an investor, I'm staying clear of B&N shares. (I do own Amazon, as I've reported.)

B&N shares sank below $12 a share in July, less than half their high for the year. They jumped more than $3 after news of the sale, suggesting some investors think a bidding war might break out. The company says it is selling because shares are cheap. But in my experience, most companies sell when they believe their shares are expensive.

-- James B. Stewart, a columnist for SmartMoney magazine and SmartMoney.com, writes weekly about his personal-investing strategy. Unlike Dow Jones reporters, he may have positions in the stocks he writes about. For his past columns, see: www.smartmoney.com/commonsense.