Top U.S. booksellers Barnes & Noble Inc and Borders Group Inc will pay a price for coming late to market with electronic book readers, analysts said.
Barnes & Noble cut its full-year earnings forecast on Tuesday on expectations of a tough holiday season and high costs associated with accelerating the production schedule for its Nook electronic reader. The largest bricks-and-mortar U.S. bookseller, reflecting supply chain management issues, said last week it had sold out of its Nook e-readers.
Supermarket mogul Ron Burkle and his investment arm, Yucaipa, own a 16.8 percent in Barnes & Noble and have called for better corporate governance at the company.
Rival Borders Group posted a loss from continuing operations that was larger than what Wall Street analysts had expected. Sales at stores open for at least a year fell 12.1 percent at its Borders Superstores and 7.2 percent at its Waldenbooks stores.
Borders does not have its own e-reader, which some analysts view as a negative. Instead it sellsSony Corp's e-readers in its stores.
Borders Chief Executive Ron Marshall defending the lack of a store-branded device told Reuters his company would remain device agnostic, meaning a user could load any book they wanted onto any e-reader.
Borders has been behind the curve, we don't even know what their plans are said Michael Souers, a specialty retail analyst at Standard & Poor's Equity Research. E-book readers will be one of the top holiday items this season. S&P cut its share price targets on both stocks.
Both chains appear to have already lost market share to Amazon.com and its Kindle device, analysts said.
The first mover advantage that Amazon has is that it's planting in the consumer's mind that Amazon is the No. 1 place to go for an e-book, said Sarah Rotman Epps, an analyst with Forrester Research.
E-books are not cannibalizing anything yet, but they are growing quickly and the dollar value of the book industry will eventually fall, Rotman said. E-books now make up 2 percent of U.S. book sales.
Borders shares fell 13.4 percent to $1.74, while Barnes & Noble lost 5.4 percent to $22.25.
Barnes and Borders are also caught in a price war between Amazon and Wal-Mart Stores Inc's online division , though both companies said investors should not overplay the price brinkmanship.
Borders' Marshall said the titles that Amazon and Walmart.com have repeatedly cut prices on represent only 3 percent of its business.
Barnes & Noble Chief Financial Officer Joseph Lombardi told analysts that fears over an online price war were overblown.
S&P's Souers said Barnes & Noble and Borders could not compete with Amazon and Wal-Mart on price, but that the pain would be limited.
Barnes & Noble reported a quarterly loss that was in line with analysts' expectations, but lowered its full-year outlook
Borders' Marshall said consumers were still unsettled, and therefore holiday sales were more unpredictable.
He told Reuters that bookstore's inventory increase this quarter was prompted by shortages in key titles last holiday season. Borders expects inventory to be 4 percent to 7 percent higher this quarter than a year ago.
S&P Equity cut its price on Borders to $1.50 from $2.
Earlier in November, Borders said its Waldenbooks stores would become a smaller chain in 2010 as it planned to shut 200 stores. It also said it would cut 1,500 positions, most of which are part-time.
Borders' largest shareholder is hedge fund Pershing Square Capital Management, led by William Ackman, which owns 17 percent of the bookseller, according to Thomson Reuters data.
(Additional reporting by Nicole Maestri in San Francisco; Editing by Lisa Von Ahn, Leslie Gevirtz)