Barnes & Noble (BKS)

Barnes & Noble's membership program offers customers discounts on purchases in exchange for an annual membership fee. This program drives customers to return to Barnes & Noble and also provides the firm with a large amount of data on customer behavior and preferences.

In December 2010, Pershing Square Capital Management offered to finance $960 million (or $16 per share) for Borders to buy Barnes & Noble. Pershing owns nearly 40% of Borders' common stock.

The book selling business is going through drastic changes with the introduction of electronic reading devices over the last couple of years. Devices like the Nook, Kindle, and Kobo are making brick and mortar stores more obsolete. As a result, Barnes & Noble and Borders have both struggled as they compete with Amazon, Apple, and Google for a share of the e-Book market. If the two stores were to combine, it would decrease overall costs through economies of scale and give the company a better shot at capturing more of this emerging market.

Barnes & Noble has has decreasing comparable-store retail sales for many quarters. Part of this is due to the sluggish US economy, which has turned people away from the company's stores and into libraries or discount retailers. Another part of it has to do with the growth of the digital book market, which has been hurting brick and mortar stores as well as sales of physical books. According to the Association of American Publishers, in the first half of 2010 e-books made up 8.5% of trade book sales, compared to just 2.9% in 2009. The growing e-reader market provides a way for companies like Barnes & Noble to make up for falling book sales.

Barnes & Noble is one of the leaders in the e-reader market with its Nook device. The Nook offers more than a million titles, of which 500,000 are public domain books from Google Books. The device comes with 2GB of memory (which can hold 1,500 eBoooks, has an expandable microSD slot for additionally memory, an LCD color touchscreen, free lending of certain eBooks for up to 14 days and is ePub format compatible (meaning that books bought from other stores would be compatible with the device. The Nook comes in two versions, the Wi-Fi Only and 3G + Wi-Fi, which are differentiated by internet connectivity.

As a result of the Nook, the company's online sales increased by 24% in FY 2010. Even though the company faces challenges from Amazon's Kindle 2, Apple's iPad, and Border's Kobo, the e-reader market is still young and Barnes & Noble has an opportunity for growth.

Barnes & Noble offers helpful customer service representatives who can help shoppers find gifts and other products, an advantage over online stores such as Amazon.