Business Update with Mark Lacter

Struggling bookstores

KPCC business analyst Mark Lacter talks about how big chain bookstores struggle to compete against electronic devices and other online businesses.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. I was in a bookstore in Pasadena just before Christmas and, unlike in past years, it took just a couple minutes to get through the checkout line. How bad is it?

Mark Lacter: Just be glad you live near a bookstore that’s open Steve. Borders is about to close locations in Westwood and in Thousand Oaks. Barnes & Noble has just closed its store in Encino over a lease dispute with the developer Rick Caruso. And this is just the beginning. The retail bookstore business is about to get a lot smaller, thanks in part to Amazon and discount chains like Target and Wal-Mart, but also thanks to the spectacular growth of e-readers (and that growth is only going to get bigger over the next few years).

Julian: Full disclosure? I'm reading Dracula on my Kindle this week.

Lacter: There you go… Frankly, the chain bookstore has trouble competing - sort of the way the local independent bookstore couldn't compete with Borders and Barnes & Noble 10 and 20 years ago. They’re shelling out big money in rents - and the irony is that no matter how big they are they'll never have the kind of inventory that Amazon can offer from its warehouses - or in digital form, where there's no limit on space. And now, there’s a financial crunch - Borders had to postpone payments to some of its vendors, and right after that one of the big book distributors said it would be temporarily halting shipments to Borders (although another distributor said it would keep shipping).

Julian: What's amazing about this is how it happened right after the holiday shopping season...

Lacter: ... just when you'd think there would be plenty of cash to pay vendors. So you have executives from Borders trying to work out a refinancing plan with a new bank - and it's still possible they can come to an agreement. But more store closings are almost guaranteed, which means more lost jobs and lots of empty retail space. Barnes & Noble is in somewhat better financial shape, much of its sales growth has come from its own e-reader device, called the Nook. And when people buy a Nook or a Kindle why would they need to visit a bookstore? That's really the problem.

Julian: Well, I did buy a cookbook, a date book and a couple jigsaw puzzles at that book store. Mark, when does a city claim the right to force a local business to sell?

Lacter: Well, when it's the city of Glendale trying to accommodate developer Rick Caruso. He wants to expand the shopping complex called Americana at Brand. The expansion would involve taking over land where there's currently a hotel and a second small building. Caruso has offered $6 million for the hotel - that's supposedly 22 percent above market value. But the hotel owner doesn't want to sell, or at least sell at that price, and the city is now threatening to simply take over the property at a much cheaper price through eminent domain.

Julian: Can Glendale do that?

Lacter: Most likely yes because the land is within the city's redevelopment area. Actually, the U.S. Supreme Court ruled a few years ago that government can take over private property for the purpose of transferring it to other private owners. And there's no doubt that as far as Glendale is concerned, Caruso's expansion plan makes the most economic sense because it means more tax revenue and more jobs.

Julian: But the hotel is also contributing to the city…

Lacter: That’s right - and keep in mind that Caruso’s expansion won't make or break the overall center (that's unlike a lot of disputes involving eminent domain where a specific piece of property can really stymie an entire project). So this comes down to a battle between a very powerful developer who wants to make an already large shopping center that much larger and the less-than-powerful owner of a small hotel who may be holding out for more money or may just want to keep operating his business.

Lacter: Mark Lacter is a contributing writer for Los Angeles Magazine and writes business blogs at LA Observed.com and at kpcc.org.


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