In a "dipstick" press release via PhilStar.com, National Bookstore, the nation's largest book and supplies chain, is said to be "seriously mulling" an IPO to fund its expansion in Southeast Asia and China. National Bookstore is one of the few remaining "big brands" in the country that have remained privately-held despite the strong and continuous clamor for it to open its ownership to the investing public. With this announcement, do investors have sufficient reason to be excited, or should we expect another disappointing IPO, much like what we had with Cebu Pacific last year? Here are four reasons why I think National Bookstore is around two decades too late in considering going public.
1. It's major businesses are on their way to obsolescence...
Over the past decade, the continuous growth of Internet usage and major developments in information technology have laid many a business model asunder. In many parts of the world, traditional modes of content and media delivery--CDs for music, DVDs for videos, and print books--have almost been completely replaced by full-fledged online distribution systems from the likes of Apple, Amazon, and Google. Once-mighty media brands in the US have fallen victim to this trend--think Blockbuster (video rentals) and Borders (book retail)--and many more like Barnes and Noble continue to struggle to keep up with the times. Thankfully for National Bookstore, the Philippines is slow to adapt to these changes; still, adapt the market does. With the more Internet-savvy, younger generation leading the way to embrace these technological developments, it's clear where the local book and music distribution industry is headed in the foreseeable future--anywhere but up. As the biggest player in both industries, that's precisely the direction we should expect National Bookstore to go in the next five to ten years.
2. ... while its remaining reliable revenue stream is under constant threat from low-priced competition
In times past, National Bookstore could easily command high margins for basic school supplies because middle- and upper-class families were still willing to pay a premium for the convenience of shopping in an air-conditioned store. However, as more and more households become more budget-conscious and as the middle class continues to lose power in the country, Divisioria and other places have become the preferred destination of a growing number of Filipinos for inexpensive school supplies. To attract more business and protect its revenue base, National Bookstore is forced to lower prices, which of course erodes its once attractive margins. I just don't see how the firm would be able to reverse this trend in the foreseeable future.
3. The constantly growing threat of piracy
If you don't believe it yet, believe it now: EVERYTHING IS ON THE INTERNET. Let me clarify that, everything is on the Internet--FOR FREE (albeit illegal). Unfortunately for a retailer like National Bookstore, this means that most of what it sells--books, comic books, DVD videos, music CDs--are also freely available to anyone who has no qualms about piracy. And as Filipinos, you all know what out collective attitude is about piracy: what piracy?
4. Expansion in Southeast Asia and China?
In all probability, the markets in China and our other neighbors in the region are already as saturated, if not more so, than the book/music/supplies market in the Philippines; I mean, it's not like we're talking about a newfangled business model that other people haven't thought of yet. And who would not bet that piracy is just as bad in other Southeast Asian countries and much, much worse in China? So when the article mentions financing expansion into markets that already have established players and mature industries with pretty much the same high level of threats, I can't help but ask:
Who are you kidding?
I understand why the owners of National Bookstore would contemplate going public now: to preempt the business's inevitable demise and to get the most of what it can from the brand and reputation that the Ramos family has so painstakingly built over the decades. Unfortunately for them, this move would only work if investors are foolish enough to believe that there's still some growth left to the company. Sure, there's still maybe ten years of profitability left to the firm--as I said, Filipinos are slow to adapt to global technological trends. But as each year passes, as more and more of us find it "better"--for one reason or another--to read books using our smart phones, tablets, or e-book readers, we move closer and closer to catching up with the rest of the world and we find ourselves visiting National Bookstore less and less frequently.