The future of Lexington's most prominent book retailer will be decided this week. On Wednesday, Joseph-Beth Booksellers' five remaining stores, including its flagship store at The Mall at Lexington Green, and its inventory will be auctioned in Cincinnati.
It will be the latest development in what initially was hoped would be a relatively painless bankruptcy. Company leader Neil Van Uum planned to close the chain's under-performing stores and emerge a healthier bookseller. Four of the chain's nine stores closed, but some creditors rejected his plan, making an auction necessary.
Lawyers in the case expect that several bidders will want to buy and operate the chain. But only one has been identified, and that's Van Uum, who co-founded the company in 1986.
Interest in Joseph-Beth might surprise some people, given the book industry's disarray. Borders, the country's second-largest bricks-and-mortar bookseller, is in bankruptcy protection and closing more than 200 stores. The nation's largest bookseller, Barnes & Noble, put itself up for sale last year.
Industry analysts say the winning bidder in Wednesday's auction would most likely keep Lexington's store open given Joseph-Beth's firm grip on the book market here.
But if liquidators win the bidding, they would close the stores, including the Lexington Green store, selling them off book by book. Observers say it would be a major blow to Lexington Green, which has evolved into a sophisticated educational and health-oriented shopping center anchored by Joseph-Beth.
Joseph-Beth filed for bankruptcy protection in November after suffering declining sales for the past five years, Van Uum said at the time.
According to its bankruptcy filings, Joseph-Beth's revenue was $37.27 million in 2008. That declined to $36.37 million in 2009 and was $30.92 million for 2010 as of Nov. 10.
The company's café business is incorporated separately and had revenue of $5.97 million in 2008, $5.89 million in 2009 and $4.91 million in 2010 through Nov. 10.
Up for auction will be Joseph-Beth stores in Lexington, Cincinnati and Fredericksburg, Va.; a Joseph-Beth health-themed bookstore in Cleveland; and a Davis-Kidd Booksellers store in Memphis.
The auction will be held behind closed doors starting at 10 a.m. Wednesday at the Cincinnati offices of Dinsmore & Shohl LLP, Joseph-Beth's attorneys.
The auction is "very straightforward," said Ellen Arvin Kennedy, a partner in the firm who works in its Lexington offices.
"The assets are easily identifiable. ... It's a good situation because there's easy access to information to lead a bidder to make decisions on what they want to bid," Kennedy said.
"We are very optimistic that we will have several bidders who will want to purchase the stores and operate them as they are operating now," she said.
Bidders, who must file confidential initial bids by Monday, can offer to buy any or all of the company.
The successful bidder, if approved by the bankruptcy court at a later date, would own the company's remains free and clear of any liens and claims.
Who would bid?
Chief among the bidders will be the man who has built the chain.
"I've put 25 years into this, and I'm prepared to go into this and win it," Van Uum said, declining to discuss his bid further.
Speculating on additional bidders becomes tough, industry analysts say, partly because of how the book industry has struggled in recent years.
"Most people still discover new books in the bookstores, but then go back and buy them online," said bookstore analyst Mary Gotaas of IBISWorld. "It's sad."
Gotaas predicted that retail booksellers will see their profit margins fall to 1.3 percent in 2011 from 3.5 percent in 2006.
"What puts pressure on their profit margin is matching prices with Amazon, other online retailers and mass merchandisers," she said.
And don't overlook the impact of best-sellers sold by mass merchants such as Wal-Mart and Target, said Al Greco, marketing professor at Fordham University's Gabelli School of Business.
"More than half of the books sold in the United States are not sold in what you would call a bookstore," Greco said.
His research suggests that mass merchants have 52 percent of total market share. Amazon.com has more than 20 percent, and Barnes & Noble is at about 18 percent.
Even though it has been in flux, Barnes & Noble is a likely bidder, Greco said, noting that the chain has been looking at stores that Borders has closed. It also would probably be interested in Joseph-Beth because it already has a presence in the company's core market of Lexington, with its Hamburg store, and understands the area.
Another likely bidder, perhaps more so than Barnes & Noble, is the country's third-largest booksellers, Books-A-Million, Greco said.
"They've always been very strong in the South," he said, and Books-A-Million has taken over former Borders stores.
"(Barnes & Noble) probably has more financial resources than Books-A-Million; however, Books-A-Million is well established especially in the South, well respected in the South, and that could be a great market for them to move into," Greco said.
Books-A-Million's Kentucky stores are in Corbin, Louisville, Middlesboro, Owensboro, Paducah and Somerset.
Another possibility is that a chain smaller than Joseph-Beth might look to pick up a few more stores, said Michael Norris, a senior analyst at publishing research firm Simba Information.
"It might work for someone who has been running stores successfully," he said. "Bookstores are closing by the thousands. ... The ones that have hung in there have done so by really understanding how emotional and community-centered local book-selling is."
That kind of emotional interest could perhaps also elicit bids from individuals or groups, said Lorraine Shanley, president of publishing consulting firm Market Partners International.
It could be "people for whom there's the romance of bookstores or who have the arrogance of thinking they can beat the system," she said.
Greco said a locally owned bookstore in Joseph-Beth's various markets might make a bid for individual stores.
One such store in Lexington is The Morris Book Shop, but no bid will be coming from its management.
"They have a 50,000-square-foot store; we have 2,000," said Hap Houlihan, Morris' manager and a former Joseph-Beth employee. "We're not planning on becoming a 50,000-square-foot store, because there already is one.
"Even as a business person who would see less competition if there were no Joseph-Beth, I'm delighted there are people out there who realize the Lexington store has a value."
But those who see value in Joseph-Beth don't just include those who would keep the business open. Liquidators are expected to bid on the company's assets. They would close the stores, selling off all the inventory.
Liquidators generally bid less, though, than those who attempt to keep a firm operating.
Effect on Lexington Green
So what would happen if liquidators wound up with Joseph-Beth and its Lexington store closed?
"I don't even want to try to guess what that picture might be like," said Michael Stutland, owner of two Artique stores outside the entrance to Joseph-Beth, as well as a store at The Shops at Lexington Center.
"I would never have come out to Lexington Green had it not been for Joseph-Beth," he said. "What Joseph-Beth brings to this community is a signature local business that is special and vital."
Doris Benson, president of Langley Properties and a partner in Lexington Green, said the bookseller "is almost like an institution with Lexington Green."
At approximately 45,000 square feet, it represents more than a quarter of Lexington Green's total square footage.
It would be difficult to find a replacement given Lexington Green's location, said Tim Haymaker, broker for Haymaker/Bean Commercial Real Estate.
"You've got a category killer in Fayette Mall," Haymaker said. "They've got one of everything, except for a bookstore (Borders closed its Waldenbooks store there last year).
"When you talk about general retail, most retailers are going to want to be across the street in Fayette Mall."
Haymaker said Whole Foods might be interested in expanding into the space, because it has stores in other cities that are larger.
Benson said she is confident, though, that Joseph-Beth will continue operating there.
"They are there for the long haul," she said. "It's unfortunate that this reorganization had to take place, but some stores in other out-of-state locations needed to be closed.
"There is no reason for us to think that Joseph-Beth won't go forward serving this community in the same manner it has in the past."