With shares of main book retailers Borders (NYSE: BGP) and Barnes & Noble (NYSE: BKS) having tanked in recent months, some prominent investors are starting to wonder whether there’s value to be unlocked.

Pershing Square Capital Management, a very good activist hedge fund run by William Ackman, secured a spot on the Borders board of directors final week, and may seek to assemble changes.

But with sites like Amazon.com (NASDAQ: AMZN) and discounters like Wal-Mart (NYSE: WMT) offering books at a much better value than Borders can, the activists’ traditional bag of tricks — cost-cutting, buybacks, dividends, putting the company up for sale, etc — may not be suitable. For Borders, cost-cutting is the opposite of the solution. In order to remain relevant, the brick and mortar stores will have to supply a value-added experience to the consumer, and build it worth paying 30% more than you would on Amazon. Creating an environment like that costs money.

Running a small independent bookstore is

a labor of love characterized by poor margins and cutthroat competition. The Wall Street Journal recently looked at one of the ways struggling retailers are looking to stay open (subscription required) — essentially getting book-lovers to “invest” in the stores to keep them open, with the understanding that the investment is risk and has very little upside. Now that my friends is angel investing.

In the end, I think Ackman may be barking up the wrong tree. As Oren Teicher, the chief operating officer of the American Booksellers organization, told the Journal, “The margins are small, the competition is fierce, and you’re selling a product that is the same no matter where you buy it.”

Borders is already bleeding red ink and won’t be able to distinguish itself without spending tons of money, probably exacerbating the problem. But in its current structure, the company just can’t form any money.

Original post by Zac Bissonnette

income taxes loans student loans banking debt payday loans finance home equity stocks foreclosure