Many investors think of huge retail operations and two names come to mind first. The current king of retail is Wal-Mart Stores, Inc. (NYSE:WMT), and the king of online shopping is Amazon.com, Inc. (NASDAQ:AMZN). However, one thing that’s certain in retail is, no company can stay on top if they don’t see the next threat coming.
This is a crazy idea right?
In a recent article, fellow Fool Rick Munarriz commented on a Barron’s article that suggested Microsoft Corporation (NASDAQ:MSFT) might consider just buying Barnes & Noble, Inc. (NYSE:BKS) whole. Microsoft already owns about 17.6% of Barnes & Noble’s college bookstore and Nook business, and the company is looking to sell their retail operations, why not just take the whole thing over?
Rick’s take was this deal has virtually no chance of happening. He pointed out issues like physical bookstores becoming more irrelevant because of digital copies. He said that taking over the college bookstores wouldn’t make sense, as they will eventually go digital as well, but it won’t be on a Surface, it would likely be on an iPad or Android device.
Not so fast, what if…
The Barron’s article suggested that Microsoft could probably take over Barnes & Noble, Inc. (NYSE:BKS) at about $25 a share, and that this would give the company’s retail strategy a jump-start. This idea isn’t actually as crazy as it sounds at first.
Rick dismisses the idea of Microsoft being able to fill a Barnes & Noble store, but that wouldn’t be the point anyway. First, the stores are already full, and imagine what Microsoft could do with some of the space. The company needs a place to showcase its Windows smartphones, Surface tablets, and Xbox hardware. What better place than Barnes & Noble? The company could carve out a less profitable area from each store and install shops within the store for these items.
For all of the talk about physical items going digital, Amazon.com, Inc. (NASDAQ:AMZN)’s own results don’t bear this out. The company has sold an untold number of Kindle devices, yet their sales growth in media is in the high-single digits. By comparison, Amazon’s general merchandise sales (aka. physical stuff) grew by 28% this last quarter.
Clearly there is opportunity selling physical items as Google Inc (NASDAQ:GOOG) is reportedly looking at a service called Shopping Express. This service would connect customers to local stores for delivery of goods. This service might be either through subscription like Amazon Prime, or with a small fee per delivery. Google Inc (NASDAQ:GOOG) knows it can’t ignore the Amazon.com, Inc. (NASDAQ:AMZN) threat to its search dominance. If customers can go on Amazon and search for virtually any product, why do they need to go to Google first?
Microsoft could use the 677 Barnes & Noble, Inc. (NYSE:BKS) retail stores as a way to get better distribution for their own products. Best Buy Co., Inc. (NYSE:BBY) is one of the better retailers for Microsoft products, but inside that store, Windows 8 sits alongside iPads, Android smartphones, and even Kindle products. If Microsoft owns Barnes & Noble, they have a captive audience to market their goods to.
Those college kids
One of the ideas that Rick scoffed at, was the concept of Microsoft taking over the Barnes & Noble, Inc. (NYSE:BKS) college bookstores. He questioned whether anyone believes that college kids would dump their iPhones and Android devices for Windows 8 units? To be honest, I think the potential is there for those college kids to do exactly that.