Barnes & Noble's New Giant in Memphis
Latest Salvo in B&N-Amazon's War of the Warehouses
Sticks and stones may break my bones,
Pardon our mangling the age-old axiom, but it aptly describes the "War of the Warehouses" that's raging between booksellers Barnes & Noble (www.bn.com) and Amazon.com.
And that's become a bit of a wacky war, seeing as how it began as a sort of Old West shootout: a cyber-savvy business and real estate strategy facing off against a far more traditional, bricks-and-mortar approach. Since then, though, things have turned, as Alice would say, "curiouser and curiouser" -- the most curious part being steady drift of the two once diametrically opposed business models toward an almost eerie similarity.
Barnes & Noble has fired the latest salvo in the War of the Warehouses. B&N recently announced that it's opening a 600-employee 380,000-sq.-ft. distribution facility in Memphis, Tenn., that will carry an inventory of "more than 1 million titles," say officials with barnesandnoble.com, B&N's cyberspace nome? de plume, which went public with its IPO in March.
Said Jonathan Bulkeley, chief executive officer of barnesandnoble.com, "The Memphis distribution center, along with our access to Barnes & Noble's in-stock titles at its New Jersey distribution facility, will enable us to continue to have the largest standing inventory of any online bookseller." Bulkeley also thanked "Gov. Don Sundquist and Mayor Jim Rout for their help in securing this superb facility."
The new barnesandnoble.com facility will be located in the 254-acre Chickasaw Distribution Center, where the company signed a five-year lease that included options to renew.
B&N's new warehouse comes only a few months after Amazon announced that it's opening a new 1,000-employee, $51 million, 800,000-sq.-ft. regional distribution center in the south Atlanta metro.
At least for that particular set of dueling warehouses, Amazon seems to win the battle in terms of time-efficiency. Its Atlanta metro center, which will serve customers in the Southeastern United States and in Mexico and South America, is scheduled to come online during third-quarter 1999, which will allow it to tap this year's installment of the Western Hemisphere's ever-lucrative holiday market. B&N's warehouse in the U.S. Southeast, however, won't be in operation until the spring of 2000.
Amazon's Atlanta warehouse also reflects the evolution of the two rivals, once known as booksellers, to something more like everything-sellers. Amazon's Atlanta warehouse, for example, will distribute online-offered books, CDs and DVDs, and toys, games and electronics. (Amazon has also gotten into the burgeoning online auction action.)
But B&N has similarly broadened its online offerings (albeit not so dramatically).
Those mirror-image examples illustrate how difficult it's become to tell who's winning the Amazon-B&N donnybrook - or to even accurately ascertain what the players' remaining competitive edges might be, for that matter.
Things were not always so. Amazon, after all, shook up the book industry with its initial business model, which largely eschewed physical assets like real estate to concentrate on its cyberspace core competencies. In fact, Amazon picked Seattle for its headquarters in part because of the area's sizable existing network of third-party book distribution warehouses. That provided Amazon with substantial flexibility and saved it the considerable out-of-pocket costs it would've faced in setting up its own mammoth network.
Many observers considered the model revolutionary. Information technology guru Bob Duffy, for example, observed online, "Amazon's business model . . . has set a tone likely to be emulated,"
For certain, B&N noticed. And it not only emulated; it sued. B&N took Amazon to court over the latter's claim of being "Earth's largest bookstore." That couldn't be true, B&N contended, since Amazon's wide-scale warehouse outsourcing limited its "actual" inventory.
That suit was ultimately settled out of court. However, as the Warehouse Wars illustrate, left thoroughly unsettled is the question of who's emulating whom?
For example, cyberspace, where B&N now bills itself as "one of the world's largest booksellers on the World Wide Web" (italics added) has become a ubiquitous part of the corporate lexicon, including www.textbooks.com, a college campus-focused B&N site that was introduced last month.
B&N has also made tremendous strides in upping its Web site's once paltry hippness quotient. A few years ago, for example, who would've thought that B&N's home page would include mention of Stop Making Sense, the Jonathan Demme-directed concert film that fully catches The Talking Heads in their loopy, blazing glory.
Nonetheless, most observers agree that Amazon still has the upper hand in cyberspace. Its pioneering, highly participatory online model created a loyal, hardcore following. And its site still seems to best B&N's in terms of ease of navigation, the amount and the quality of online content, and the level of user participation.
B&N, though, has made it more difficult for newcomers to discern a cyberspace difference. Its Web site has aped many of Amazon's most popular features, including author chats, reader reviews and book synopses.
B&N has also embraced some of the alliance-friendliness of Amazon's original lean-and-mean model. B&N now has strategic alliances with major Web portals and content sites including AOL, Lycos and MSN, and it's been working to develop partnerships that reduce its reliance on creating its own distribution facilities.
The new Memphis facility, in fact, sprang in part from an alliance that failed: B&N's acquisition of Ingram Book Group. Both companies agreed to formally withdraw the acquisition application that was under review by the U.S. Federal Trade Commission. Officials from both Barnes & Noble asserted that the transaction would ultimately be approved in the courts. The prospect of protracted litigation, however, was the deal-breaker, they indicated.
"Although we believe the Ingram acquisition would have provided benefits to both Barnes & Noble and the entire industry, including consumers, publishers and booksellers, our long-range financial interests will not be affected," said Leonard Riggio, B&N chairman and chief executive officer.
"We remain committed to leading the marketplace and offering consumers the best value, choice and service in the book-selling industry," Riggio added. "By terminating the acquisition, we now have available the $600 million for other strategic investments and acquisitions."
As they abandoned the Ingram acquisition, B&N execs announced that the Memphis distribution center was going to be one of those strategic investments, or, as company officials called it, an "alternate plan."
On the other side of the lines in this Warehouse War, things look somewhat similar. (So much so, that after a while, you begin hearing inside your head The Who's famous rock-and-roll refrain: "Meet the new boss/Same as the old boss.")
Amazon, for certain, retains tremendous cyberspace cachet. With B&N's legal onslaught, however, the company now carefully bills itself as "the Internet's No. 1 music, No. 1 video and No. 1 book retailer."
Ironically, at the same time, Amazon has been forced to move much closer toward its former self-proclaimed moniker as "Earth's largest bookstore." Amazon has done an about-face on real estate, prodded by strong competitive pressures, plus the host of new products it's distributing. Very rapidly, it's amassing a substantial distribution center portfolio. The metro Atlanta facility, for example, marks the fifth new distribution center that Amazon has announced this year, and the company's largest-ever warehouse. By the end of 1999, Amazon officials say the company will have more than 3.5 million sq. ft. of space at seven U.S. distribution centers. That's more than 10 times the total distribution center floor space that the company had in 1998.
That's a long, strange trip, and a very fast one, for a company that didn't open its first distribution facility outside the Seattle area (in New Castle, Del., near Philadelphia) until November of 1997.
More significantly, Amazon is finding that the strategy shift to playing the traditional real estate game is leaving bruises on its bottom line. The company reported a $138 million loss for its most recently completed business quarter. And CEO Jeff Bezos, the man whose garage was Amazon's lone distribution point when he founded the company in 1995, has warned shareholders that the $300 million-plus in warehouse expenditures will likely hurt future business results in the short term.
You probably get the picture here: The War of the Warehouses slug-out seems to unfolding alongside a parallel universe in which sameness is the name of the game. In fact, with these two online titans, you could even order up a film to match the mood:
Invasion of the Body-Snatchers, anyone?