Oct 4, 2018

Axios Future

By Bryan Walsh
Bryan Walsh

Welcome back to Future. Thanks for subscribing. Consider inviting your friends and colleagues to sign up. And if you have any tips or thoughts on what we can do better, just hit reply to this email or shoot me a message at steve@axios.com.

Some news: Axios' new autonomous vehicles newsletter has an expert (human) reporter at the wheel now. Veteran auto reporter Joann Muller starts writing the newsletter tomorrow, and you can sign up here.

Okay, let's start with ...

1 big thing: The last big bookstore

Illustration: Sarah Grillo/Axios

One by one, storied chains in books, toys, sporting goods and more have disappeared from American malls and main streets, then vanished from our collective memory. Now, Barnes & Noble, the last chain bookstore standing, is finally buckling, too.

The big picture: The arc of retail has been bending toward consolidation for decades, writes Axios' Erica Pandey. Superstores like B&N and Toys "R" Us took us from shopping small to shopping big. Next, we seem to be moving inexorably toward one, powerful, all-knowing, everything store.

Driving the news: B&N announced yesterday that, after hearing acquisition interest from several parties, it has initiated a strategic review toward possibly selling itself to stay afloat.

  • One bidder is founder Len Riggio, who owns 19% of the company but says he will follow the recommendation of an independent board appointed to handle the review.
  • B&N's beleaguered shares soared as much as 21% on the news.

How we got here: In 1996, Jeff Bezos, then the 31-year-old CEO of a scrappy startup that sold books online, was approached by Riggio, the multi-millionaire boss of iconic B&N, about a collaboration. For context, Amazon had $16 million in sales in 1996 and B&N $2 billion.

Riggio told Bezos that B&N would soon start its own website and crush Amazon, reports Bloomberg's Brad Stone in "The Everything Store," a history of the company. It would be better if they worked together. Bezos declined.

Flash forward: Today, Amazon has about half the market share for print books, and B&N only one-fifth, according to Mike Shatzkin, an industry consultant.

  • Amazon's share jumps to 84% for e-books. B&N has just 2%.
  • The e-commerce behemoth is hovering around a $1 trillion market cap, while B&N is worth just about $475 million, 0.05% of that.

The long view: Books were the first category to reach an e-commerce tipping point — a 20% market share, the point of no return at which, as industry after industry has discovered, Amazon's encroachment wipes out almost everyone. That was in 2004, and the losers were Borders, Crown Books, Book World and others.

For 14 years, B&N managed to hang on. But after closing 90 of its 720 locations in the past seven years, often leaving areas of hundreds of thousands of people without a single major bookstore, it appears prepared to call it quits.

Meanwhile, Amazon's reach has continued to be deadly. It wiped out the sporting goods giant Sports Authority and has delivered staggering blows to department stores like Macy's, J.C. Penney and Sears.

Amazon declined to comment. But there is something sentimental and very different in the elimination of bookstores versus department store chains. Families hang out in bookstores, and culture, history and community are imbibed there.

"We haven't mourned every casualty of the internet. We are upset about Barnes & Noble more than we are about Toys "R" Us. People didn't care about Toys "R" Us. They didn't hang out there on a date when they were 23."
Mike Shatzkin
2. The Amazonian future

Amazon Books in Columbus Circle, NYC. Photo: Spencer Platt/Getty

If Americans are sentimental about B&N, which itself once taunted and put small independents out of business, they are not showing it very much. That may be because B&N's problem was not only Amazon — it had gotten big, flabby and, finally, obsolete, Erica writes.

To rub salt in the wound, now Amazon is trying to beat B&N at its own game.

  • In Bethesda, the local B&N, a towering structure that once anchored the town center, closed last year. Then, an Amazon Books — futuristic and powered by hyperlocal consumer data — opened down the street. When Axios visited, former B&N locals were super excited about the new store, positioned just across the street from Apple.
  • In Manhattan's Herald Square, the Amazon Books has become a busy gathering place. When I was there midday Tuesday, around 20 people were browsing the small selection of titles and another 20 or so were meeting for coffee in the adjoining cafe.

The bottom line: Amazon is vastly popular, but its schoolyard bully behavior is starting to give shoppers pause, says Cooper Smith, an analyst with Gartner L2. "In the '90s and early 2000s, Amazon was the startup taking on these killers of small business. Now, the tables have turned."

3. Salary raises that aren't
Expand chart
Reproduced from Kaiser Family Foundation 2018 Employer Health Benefits Survey; Note: Average general annual deductibles are for single coverage; Chart: Axios Visuals

Wages are rising in the tight job market, but the cost of health care that Americans are paying out of pocket is rising faster than inflation and erasing pay increases.

The big picture: The cost of employer-based health benefits — the backbone of the U.S. health care system — is growing only modestly from year to year, according to the Kaiser Family Foundation's annual review of those plans.

  • And over the past 10 years, employees have ended up covering more and more of their own health care bills out of pocket, writes Axios' Sam Baker.

By the numbers: For single coverage — a plan that covers just you and no family members — employees are paying an average of about $1,200 per year in premiums. That’s 65% more than a decade ago.

  • The bigger story is deductibles, which are growing in every way.
  • The number of employees who have a deductible is up, and their average size is also higher — by 212% since 2008, to be precise.
  • The number of employees with above-average deductibles is also up.
  • The increases in premiums and deductibles both outstrip wage increases.

Between the lines: As deductibles and other out-of-pocket costs rise, more patients are more attuned to the high costs of care.

  • The underlying cost of health care services is growing relatively slowly, compared to historical trends.
  • But there’s a sense, at least among some liberal-leaning health care experts, that employers have just about maxed out their ability to shift more costs onto employees.
  • This means that, once price increases start to pick up steam again, businesses and workers will both feel the pain quickly.
4. Worthy of your time

Artist’s impression: Exoplanet Kepler-1625b transits the star, candidate exomoon in tow. Image: Dan Durda

Now an "exomoon" (Andrew Freedman — Axios)

A U.S. map of tariff-targeted cities (Joseph Parilla, Max Bouchet — Brookings)

The outsized gallinippers of North Carolina (Megan Molteni — Wired)

The big electric car push in California (Ben Geman — Axios)

China's big hack (Jordan Robertson, Michael Riley — Bloomberg)

5. 1 gig thing: Upwork's $2 billion IPO surge

The coffeehouse office. Photo: Inga Kjer/Photothek/Getty

Since the financial crash, the U.S. economy has been moving increasingly away from full-time employment, with companies seeking to offload the cost of benefits. Upwork, a San Francisco freelance job-listing company, has ridden this surge in so-called "gig" work — people grabbing part-time employment for any number of skills.

In a market signal about the future of work, Upwork yesterday went public in an IPO at Nasdaq. Its share price spiked some 43% and continued to rise early today before settling a bit down at $20.96. This gives the company a market cap above $2.1 billion.

"This is where the future of work is," CEO Stephane Kasriel told Axios. "If you believe that, place a bet on what the future looks like."

Bryan Walsh