E-book growth to hurt booksellers

Shortly after Barnes & Noble announced its Nook e-reader last week, analysts pointed out the ongoing shift from paperback books to e-books will hurt bookstores the most down the road.

The store-based model that B&N and Borders rely on will face serious challenges, as consumers who download their books will not have a need to go to retail stores.  Even though B&N is looking to cash in on the e-reader market, it may actually hurt its revenue and profit when customers stop visiting their stores, according to Credit Suisse analyst Gary Balter.

“As the math currently works, each sale through a Nook is not just unprofitable but potentially replaces a higher-margin sale at stores,” Balter said in an analyst note.
It’s interesting to see that B&N, which likely accounted for the risk when it developed Nook, is willing to take a chance on the e-reader market instead of stores.  The growing industry is expected to sell 3 million total units in 2009, with the number doubling in 2010.  Adoption could be accelerated by lowering e-book prices, but it’s unknown if book publishers are interested in slashing prices at the moment.

I’m interested to see how Nook’s sales — with analysts predicting a decent introduction to the market — play out against B&N’s retail sales.  If Nook cuts too much into B&N’s revenue and profit through brick and mortar locations, what kind of backup plans does B&N have?  With the Nook e-book prices already routinely priced higher than offerings at Amazon, will B&N slash pricing at some point?

We contacted B&N to discuss the Nook, but haven’t heard back from them as of yet.