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Mounting Problems for Barnes & Noble: Is There a Way Out?

Barnes & Noble, the largest bricks-and-mortar bookseller and second-largest seller of ebooks in

the U.S., has some big problems.

– The slow decline of bricks-and-mortar retail overall, exacerbated in Barnes & Noble’s case by

the move from reading print books to eBooks (which are almost exclusively sold online and

through devices).

– The end of growth for e-reader sales. Even publishers think that e-readers will soon be

irrelevant.

– Barnes & Noble’s failure to grow Nook tablet sales while its competitors are growing sales for

their tablet devices, riding a rising worldwide tide of tablet adoption by consumers

More generally: While competitors Apple, Amazon and Kobo continue to expand internationally

while fighting for market-share in the U.S., Barnes & Noble has barely expanded to the UK, let

alone the dozens of countries the others are already in.

The evidence of these problems is in the company’s poor performance in its last quarter of

2012. It announced the results in February 2013 and they weren’t good: revenues were down

more than expected across the company. Yet, the company’s stock price didn’t budge. Forbes

specialists suspect it’s because chairman and largest stockholder Len Riggio is exploring buying

the retail division, comprised of nearly 700 bricks-and-mortar stores across the U.S., and taking

it private, leaving the college bookstore segment and Nook (together, Nook Media) to fend for

itself.

While that might be good for the company’s investors, it doesn’t address B&N’s main problem

when it comes to the book publishing industry: Is there a way for B&N to grow its ebook

business to compete with powerhouses Amazon and Apple? Can B&N be a part of the U.S.

book publishing industry’s future and not just its past?. The company is reportedly “rethinking”
its digital strategy, up to and including ending its device business (though a company

spokesperson denied this was a possibility when I asked her about it).

If Barnes & Noble is to succeed in the next five years in book retail, it needs to take drastic

action — that much is clear. While eBooks growth in the U.S. is running at a 30% to 50% clip,

Barnes & Noble grew its digital content sales by about 7% in its last quarter of 2012. That’s not

sustainable long-term if the company wants to at least retain its market-share in eBook sales in

the U.S. and remain a viable concern. Company CEO William Lynch told investors late last year

that digital content sales growth was the key to profitability for Nook, which currently loses

about $300 million a year — 7% growth isn’t going to change that.

So, what is?

B&N’s strategy to sell Nooks in a way its competitors can’t is to feature them in its retail stores.

This hasn’t worked yet and doesn’t look like it’s ever going to. And if Riggio splits the

company’s retail stores from Nook and takes them private, ¿why not sell iPads or other tablets

people actually buy rather than the Nook?. Could be a solution.

Barnes & Noble's Big Problem -- and What to Do About It

Barnes & Noble is the biggest bricks-and-mortar bookseller in the U.S. and probably the world

— and it has a big, big problem, which is also its biggest opportunity (making it an even bigger

problem): Nook.

Its retail store sales are down versus previous quarters in 2011; not a surprise, considering

trends in retail and book-buying. What was surprising in its last 2012 quarterly report is that

its Nook business shrank from the previous year. For those of you who don’t know, Nook is

B&N’s supposed white knight. CEO William Lynch told investors on a conference call in Nov.

that the digital content and device business is supposed to scale soon and stop losing so much

money (it’s been a nine-figure money-losing venture for B&N for years now) and thereby

rescue the company. Barnes & Noble is now closing about 15 stores per year.
Just how bad is it for Nook? Well, e-reader sales declined in 2012 for the first time since e-

readers took off — and that certainly affected Nook e-readers. And despite tablet sales

booming across the board in 2012 and an improved product line, Barnes & Noble managed to

sell fewer tablets in its holiday quarter than in the previous year (1 million in 2012 versus 1.4

million in 2011). As a result of its failure here and the success of such powerhouses in the tablet

market such as Asus and Samsung (yes, them), its market-share of tablet sales for the

quarter plunged to 1.9% from 4.6%. That’s a massive failure. To make matters worse, even

though there were more people who theoretically had more Nook devices in their hands (fewer

units being sold is still more units entering the market), Nook digital content sales were down

about 12% versus the previous quarter.

White knights don’t ride their horses backwards.

Let’s review:

 Nook is losing money

 Nook isn’t growing

 Nook is sinking when a rising tide is lifting all other boats

 Nook is the company’s big hope in the face of a declining physical retail business.

So, what should Barnes & Noble do about it? First off, no need for an obituary just yet. Billions

of dollars run through this concern — it’s not over yet. Not by a long shot.

And Microsoft and Pearson just made significant investments in the company, totaling more

than $700 million over five years.

Its retail experience is one thing that is core to Barnes & Noble’s business that has fallen off

significantly in recent years and could make a real difference in its physical and digital

businesses. Some publishing executives say that it “sucks.” The Nook retail experience is far

inferior to the competition (Read: Amazon and Apple). The data supports these anecdotes. In

2010, Barnes & Noble was the highest rated retailer when it comes to “customer experience”

according to Forrester’s 2010 Customer Experience Index. In 2012, the company has the

distinction of being one of the fastest falling retailers on the list.

The advice of Forbes to Barnes & Noble is to improve their retail experience. Focus exclusively

and relentlessly on it. In stores, I wouldn’t begin to know how to advise on this. I will say that

the company’s retail CEO told The Wall Street Journal last week, ”You go to Barnes & Noble to

forget about your everyday issues, to stay a while and relax,” he said. “When you go to Bed

Bath & Beyond, you don’t sit down on the floor and curl up with your blender and your kid.”

I’m not an expert, but I don’t think you “sit on the floor and curl up” with anything in an

electronics store, and today B&N devotes much retail space to selling Nooks. It sounds like a

good strategy — these digital zones B&N has developed to migrate its customers over to its

Nook business — but whatever the company is doing to sell Nooks obviously isn’t working.

But I think the path for Nook retail is clear: copy Amazon. The Kindle retail experience is great. I

personally find it very easy to navigate and I’ve been up-sold many times, buying more ebooks.

Beyond that, Amazon grew its digital content retail business by double-digit percentages in

2012 to many, many billions of dollars worldwide (this includes non-ebook digital content sales,

too).

Barnes & Noble is in trouble, but bookstores aren’t doomed just yet
By Brad Plumer, Published: February 28, 2013 at 3:16 pmE-mail the writer
Bookstores — the big chains, at least — keep getting crushed. Back in 2011, Borders declared
bankruptcy and liquidated its 399 stores. And the latest victim is Barnes & Noble, which has
seen steadily declining sales and is now closing about 15 stores per year.

So what now? (AP)

The general consensus is that large retailers are getting devastated by Amazon and online
book-buying. Barnes & Noble, for its part, tried to hold its ground by offering its own e-reader,
the Nook. But that strategy now appears to be faltering. On Thursday, the company reported a
stunning 26 percent drop in Nook sales during the last quarter of 2012. The Nook, said CEO
William Lynch, was no longer able to compete with full-featured tablets like the iPad. And that
means the company had no way to stem the losses from a 2.2 percent decline in sales at its
actual stores.
Some observers have suggested that Barnes & Noble should just retrench and focus on selling
physical books at its still-profitable branches (particularly at its 674 college stores around the
country). The chairman of the company, Leonard Riggio, is reportedly planning to buy back just
the retail portion of Barnes & Noble and take the company private, while getting rid of the
Nook operation. Others have argued that the entire brick-and-mortar chain bookstore model is
simply doomed as a business — at least in the face of Amazon’s onslaught.

The nation's largest bricks-and-mortar bookstore Barnes & Noble (NYSE: BKS  ) admitted

defeat yesterday by abandoning its attempt to compete in the tablet market.

The world wasn't shocked.

Even without the benefit of hindsight, the hubris displayed by Barnes & Noble executives
throughout the whole process was laughable. On yesterday's conference call, during which they
discussed the company's quarterly results, its executives were curt and unresponsive to analyst
questions. It was a poor showing to put it mildly. One would have been excused for expecting
humility given that they had just overseen the biggest quarterly loss in the company's history.

When the first Nook Color was introduced at the end of 2010, it was pitched as a state-of-the-
art, ground-breaking device. The "world's first color eReader." It was even lauded as a desirable
alternative to the Apple iPad, which Barnes & Noble CEO William Lynch said was too heavy and
too expensive. At the time, it sounded like naïve, pie-in-the-sky ambitions from a young and
inexperienced CEO, which Lynch was at the time (and arguably still is). But now, it's nothing
more than a massive failure that's cost the ailing bookstore chain hundreds of millions of
dollars at a time when it simply couldn't afford it.

To be clear, the Nook is not the problem. It's rather a symptom of the way the company has been
mismanaged. Leonard S. Riggio is an American businessperson and entrepreneur. He is the largest
shareholder of the book store chain Barnes & Noble. In 2013. He sold Barnes & Noble the stores
that now make up its college division, sending the tangible book value of the company from above
$500 million down to a negative $330 million. Riggio is and has been looking to get out, and to
make some money while doing it. He already made millions off the company years ago when he
forced them to buy a chain of college bookstores which he owned (and initially borrowed money
from B&N to purchase in the first place). That purchase, which became Barnes & Noble College
Bookstores, is what put the company in debt, and started their management and financial
problems. Now, with the closing of Borders, and the growth of the eBook market—led by their
competitor Amazon.com—it seems that Riggio knows the days are numbered for old fashioned
bookstores.
The investor, market analyst and writer John Maxfield says: “During a visit yesterday, I asked the
person manning the Nook desk what he thought about the news. I figured that he'd at least
have an opinion considering where he was working in the store. But to my surprise, he hadn't
heard anything about it. At the same time that Barnes & Noble executives hide behind a
telephone receiver and effectively refuse to answer legitimate questions from analysts, they
leave their poorly paid foot soldiers on the proverbial front lines without so much as a heads-
up that a seismic change is under way. Suffice it to say, both Barnes & Noble's shareholders
and employees deserve better.”

SOLUTIONS:

Here’s one revolutionary suggestion: Barnes & Noble could attempt to gain market-share by

selling eBooks through its Nook iPad app. No retailer I know of (Amazon, Nook, Kobo, etc) sells

books through its iPad app because of the 30% Apple would take in every transaction. That

said, nobody else is doing it aside from Apple and it could give B&N somewhat of an edge.

Tablets are the future, but Nook is not — at least for now. Perhaps B&N needs to hitch its

wagon to another tablet, regardless of the cost, to remain a viable player in the evolving and

growing ebook game.

the Economist has a nice essay thinking through what bookstores of the future might look like,
as they revamp their business model to cope with pressure from online booksellers: The
consensus is that bookstores need to become cultural destinations where people are prepared
to pay good money to hear a concert, see a film or attend a talk. The programming will have to
be intelligent and the space comfortable.

A more attractive idea might be a membership scheme like those offered by museums and
other cultural venues. Unlike reward cards, which offer discounts and other nominal benefits, a
club membership could provide priority access to events (talks, literary workshops, retreats) and
a private lounge where members can eat, drink and meet authors before events. Different
memberships could tailor to the needs of children and students.
And if that fails, there’s always this novel idea — self-printing book machines: To survive and
thrive, bookstores should celebrate the book in all its forms: rare, second-hand, digital, self-
printed and so on. Digital and hybrid readers should have the option of buying e-books in-
store, and budding authors should have access to self-printing book machines. The latter have
been slower to take off in Britain, but in America bookstores are finding them to be an
important source of revenue. “The quality is now almost identical to that of a book printed by a
major publishing house,” says Bradley Graham, owner of a leading independent bookstore in
Washington, DC, called Politics & Prose. His shop leases an Espresso Book Machine and makes
it available to customers.

The Crazy Plan to Save Barnes & Noble

Categories: Digital Book Wire 
February 12, 2013 | DBW | 12

   

  

Publishing industry observers rooting for the

continued solvency of the nation’s largest bookstore chain are probably concerned that Barnes &
Noble is struggling to grow its Nook device and ebook business while its physical bookstore business
shrinks.

Nook is supposed to be the company’s white knight but it is losing hundreds of millions of dollars a
year on about a billion dollars of revenue and its sales aren’t growing. Despite a boom in tablets, its
Nook tablets sold fewer this past holiday season than in the prior year; it’s getting lapped by
competitors like Asus and Samsung. (Read much more about this here.)
That said, at least one industry observer hasn’t given up on B&N and he has proposed a radical plan
to save the company: savebarnesandnoble.com (mildly NSFW, depending on where you work).
The sparse site, launched about a month ago by Scott Shui, a Los Angeles based author and founder
of the website The Library Infinite, doesn’t offer any remedies to Barnes & Noble’s problems. It
does, however, link back to an earlier website from Shui, whose interest in the matter is as a reader
and book-buyer:saveborders.com.
When we spoke with Shui through Twitter, he indicated that the Borders solutions (evidently not
adopted) would work for Barnes & Noble as well.

Below is a list of our favorite suggestions from his plan:

1. Suggestion: Post executive salaries, duties and responsibilities on a private online website where all
company employees can review and comment on them.
Commentary: Because Barnes & Noble is a publicly traded company, it does make public the
salaries and other forms of compensation for its most senior executives. One wonders how
managers of Barnes & Noble stores that will be closing in the next few years feel about the
company’s chief executive William Lynch taking home $10 million in stock and other forms of
compensation in 2012.

When Citigroup floundered and needed a government bailout in the wake of the 2008 financial
crisis, its CEO Vikram Pandit took a $1 annual salary until the company righted itself.

2. Suggestion: Executive non-store salaries are to be capped at two times the salary of a store manager
until six consecutive quarters of profit.
Commentary: Barnes & Noble is profitable overall, but Nook is not. Perhaps this remedy should
apply specifically to Nook. The problem with this idea even for Nook is that it’s a technology
company and many of its mid-level employees — developers, product designers and other
technologists — command high salaries in the open market. If Nook wants to win versus Amazon,
Apple and others, it needs top talent. Top talent costs a lot of money in this field. Still, the idea of
making Nook employee compensation more closely tied to success may have merit.

3. Suggestion: Management will be required to work shifts at different stores on a monthly basis to
obtain in person employee and customer feedback.
Commentary: Is management at Barnes & Noble out of touch with what’s happening in its retail
stores? Perhaps. Either way, the company is interested in becoming less of a bookstore and more of
a cultural department store, which is a significant shift. It couldn’t hurt for the company’s senior
leadership to be spending more time on the ground with its employees figuring out how to make
that happen.

4. Suggestion: Store employees will visit company headquarters monthly on a rotating basis to provide
store feedback and participate in strategy meetings.
Commentary: This seems unrealistic and expensive. However, it does imply a business practice that
Toyota has made famous: Kaizen. It’s the company’s philosophy of continuous improvement and
central to this philosophy is taking suggestions from employees across the organization, not just
business leaders. The practice has been credited, in part, with Toyota’s rise to one of the largest
motor companies in the world.

5. Suggestion: Partner with local libraries for in-store book drives.

Commentary: The library community is eager to make friends and serve its patrons in doing so. If
Barnes & Noble were to lend its space and clout to these kinds of book drives, it could help it make
some allies in libraries. It could also give reason for people to come to the stores (and replace the
books they’re giving away — unless, like Barnes & Noble, they are filling their shelves with toys and
games instead of books these days).

6. Suggestion: Host job skill fairs where readers can look at books that can help them find a job and
manage their career.
Commentary: Information can make the difference in a successful job search and in a successful
career. Bookstores, despite the beating they’ve taken over the past several years, are still great places
to get such information. With national unemployment hovering around 8%, a jobs-related Barnes &
Noble event could be a way for the store to help struggling job seekers as well as help build its
position as an important central player in the community.

Four Disadvantages for Barnes & Noble in the Bookseller Wars

Editor’s note: Last week, we presented  advantages that Barnes & Noble has in the bookseller wars. See second editor’s note below.
It was a busy fall for Barnes & Noble, the $7 billion bookseller.

After Amazon grabbed headlines with its $199 Kindle Fire, Barnes & Noble responded with the $249 Nook Color. Could Barnes &
Noble possibly compete with a higher price? The doubters have been silenced now that post-Christmas estimates place Barnes
& Noble into contention as a vendor of color tablets, its sales of 2 million units running a solid second to an estimated 5 to 6
million for the Kindle Fire.
Despite this success (and partly because of it) Barnes & Noble CEO William Lynch startled the markets last week with a press
release that in effect put Barnes & Noble’s Nook business up for sale. The business is not getting the respect it deserves and
exploring “strategic options” would unlock its value, Lynch explained.
The previous day, the The Wall Street Journal reported that Barnes & Noble’s $80 million publishing unit, Sterling Publishing,
was already on the block. The seas seemed suddenly stormy. Could this signal thebeginning of the end for Barnes & Noble?
As we reported last week Nook sales are up 70% from the same period last year while sales of content – defined as digital
books, magazines and apps – grew by 113% over Christmas.
And while hardware analysts place the physical cost of these tablets around $200, the total costs, including packaging,
marketing, software and support, are much higher. Barnes & Noble has never attached precise numbers to its losses selling
Nook devices but it recently attributed tighter sales margins to “increased costs to support digital growth including advertising
to support the launch of the Nook….” The operating loss in its online division (including online sales and “development and
support” of the Nook) hit $66 million in its most recent quarter, up 17% from a year earlier, on a 26% increase in sales.
In the end, the only substantially profitable portion of Barnes & Noble’s business is its sleepy college bookstore business
(4.3% of sales), followed by the general retail stores (2.1%). Online loses money, even as its sales grow.

But these aren’t the company’s only strengths. As discussed in last week’s article, Barnes & Noble also has:
1. A solid management team and deep bench strength.

2. Strong niches in kid’s books and romances.

3. Retail stores that are valued showcases for physical books and hubs for large communities of writers and readers.

Another strong endorsement was registered last year when legendary investor John Malone of Liberty Media placed a $204
million bet that Barnes & Noble will be a long-term player.
Now it’s time to consider the daunting challenges that Barnes & Noble faces in the bookseller wars.

—
For more insight into Barnes & Noble, hear a senior Barnes & Noble executive speak about the company and the future of bookselling
at Digital Book World, January 23-25 in New York City.
—
 

1. Authors love Amazon.

But when it comes to publishing, Amazon and Barnes & Noble remain head-to-head competitors, but only on the surface.
Despite a few vocal detractors, most authors love Amazon.

Amazon’s infamous Christmas ploy that bribed its customers with a 5% discount if they used its mobile Price Check app to
scope the competition ended up annoying some big name authors (even though the discount didn’t apply to books). Dennis
Lehane called it “scorched-earth capitalism.” While Stephen King loves his Kindle he called it “invasive and unfair.” Pulitzer
Prize winner Richard Russo sees Amazon as “half man, half dog and thus its own best friend” (while calling Barnes & Noble
“last year’s bully”).
Still, Amazon now has 14 million-selling Kindle authors, those who have sold a million or more books through Kindle Direct
Publishing, and 30 who have sold more than 100,000 books.
Thousands of different authors offer more than 75,000 titles exclusively through Amazon so they can be part of the Kindle
Owners’ Lending Library and get their portion of a $500,000 monthly fund, bumped up to $700,000 in January, disbursed to those
whose books are borrowed from the library.
(The only people who can borrow from the Amazon Lending Library are not in fact “Kindle Owners” but rather the subset of
Kindle owners who are also Amazon Prime members. Amazon’s Prime program is another enormous advantage that the
company holds over Barnes & Noble. Prime members’ spending at Amazon “already accounts for a 40% of the company’s
domestic revenues.” As Jason Calacanis vividly describes it, Prime members are in a cult. He estimates that Prime “will reach 30
to 40 million of the 120 million households in the United States in the next four years.” Barnes & Noble offers a $25 “Barnes
& Noble Membership” which offers free express shipping and savings on Nook hardware. The company has never discussed
the success of the program beyond a vague claims of “millions” of members. Barnes & Noble would not comment.)
Amazon has its Kindle Direct Publishing service for e-books and CreateSpace for print books (and for film and music).
Barnes & Noble’s self-publishing program, PubIt, is not nearly as big a success as Amazon’s diverse publishing efforts. For
one thing it’s e-book-only; print books reach Barnes & Noble only through wholesalers. The biggest numbers Barnes & Noble has
trumpeted for PubIt are 11,000 publishers and 65,000 titles.
An informal survey we conducted in early January reveals that 28% of the top 50 bestselling Kindle e-book titles on
Amazon.com were not even available in Nook editions on Barnes & Noble.

Amazon significantly upped the publishing ante in 2011 by creating new publishing imprints and signing exclusives for
compelling digital content that its largest competitor won’t be allowed to sell on the Nook. Barnes and Noble then announced
a retaliatory measure: “We will not stock physical books in our stores if we are not offered the available digital format,” said
chief merchandising officer Jaime Carey in a written statement. It remains to be seen how this exclusion will play out.
“Barnes & Noble can’t offer authors the same volumes that Amazon can,” Outsell analyst Ned May said in an interview. “The
parallel is in the computer industry: getting developers on board. It’s the secret to Apple’s success with apps.”
The challenge, said May, is first of all to make it simple for authors to sign up. But more important, he said, “Make it
rewarding.” And Amazon is far more rewarding than Barnes & Noble when it comes to e-book sales, mostly in volume, but
also in margins (in most cases by paying self-published e-book authors a 70% royaltyvs. Barnes & Noble’s 65%).
Magellan Media Partners’ analyst Brian O’Leary feels that it’s foolish for Barnes & Noble to attempt to punish Amazon by
dropping titles where Amazon has a special deal with the publisher. “In general” he said, “it’s a mistake for any author or
publisher to create scarcity in the channel. It sends the wrong message to readers.”
And in a world where Barnes & Noble needs to compete for authors, it’s not a good idea to alienate readers.

2. Barnes & Noble’s lack of international presence has become a liability.

Barnes & Noble had been sending out contradictory signals about its international plans.

In 2009 the company was said to be searching for a “head of [its] international business.” In December, The Bookseller in the
UK reported that a senior Barnes & Noble executive said that the Nook will be available in the UK in the “not too distant
future” but was uncertain by what means this would occur. Then, last week, aBarnes & Noble’s press release included a
statement that the company “is in discussions with strategic partners including publishers, retailers, and technology
companies in international markets that may lead to expansion of the Nook business abroad.”
On the Barnes & Noble corporate site, however, this statement appears unequivocal: “Barnes & Noble, Inc. has no outlets outside
the U.S. and has no plans to expand internationally.” (Barnes & Noble would not comment.)
Amazon has established a series of strong subsidiaries throughout Europe and Asia, and continues to expand.

The Barnes & Noble version of the chart looks something like this:

 
“We’re seeing the emergence of global e-book retail platforms. For Barnes & Noble to reach a scale sufficient to compete with
those giants they need to get international quickly,” said Eoin Purcell, publishing consultant and editor of the Irish Publishing
News, offering an across-the-pond perspective. “Barnes & Noble must pursue e-book and device partnerships and e-book
retail operations outside of the U.S. Without those they’re at a significant disadvantage to their competitors.”
 

3. Barnes & Noble’s network of stores is too costly in the face of decreasing gross product margins.
Barnes & Noble’s retail strategy is based on simple logic that looks shaky when scrutinized.

At the Liberty investors’ presentation last November, CEO William Lynch essentially said that everyone else is dead so we
will live. This approach didn’t work for music retailers and it didn’t work for video sales and rentals. Why would books be any
different?
Retail is already on a declining sales trajectory at Barnes & Noble (down 2% in the latest 26-week reporting period) but still
accounts for two-thirds of overall sales. The story is buried within the company’s financial filings. (As with many companies,
frequent changes to accounting practices can make it a challenge to find strict apples-to-apples financial comparisons.)
Comparable store sales, a key measure for retail, declined by 5.4% in 2008, 5.7% in 2009 (a shortened reporting period), and
4.8% in 2010. They increased by 0.7% in fiscal 2011, but then dropped by 1.1% in the latest quarter.

This was particularly disappointing for investors, as the company expected a significant boost from the demise of Borders. In
his November presentation to Liberty investors, Lynch projected a $300 to $400 million bump on an annualized basis. Last
week, Lynch revised the forecast to be “in a range of $200 million to $230 million in fiscal 2012.” Given that Borders last full
year’s sales were nearly $3 billion, and that Barnes & Noble acquired its website and customer lists, these sales figures may be
disappointing to investors. (They shouldn’t be surprising, however: Best Buy analysts expected a huge gain for the retailer
following the demise of rival, Circuit City, but the ailing electronics giant only picked up a small percentage of the business,
ceding much of it to Target, Wal-Mart and Amazon; more on this below.)
To make a long story short, Barnes & Noble retail stores are in managed decline, at best. Operating profit as a percentage of
sales for retail dropped from 4.1% in 2010 to 2.1% in 2011 and hit a loss of 1.9% through October 29, 2011. Only the college
operation remains consistently profitable.

“They can’t turn inventory fast enough with books,” said Magellan’s O’Leary, so they had to add other products to the retail
mix, like toys and games. While Outsell analyst May sees advantages for Barnes & Noble in selling Nooks, he notes that “the
cost of physical distribution creates problems (for Barnes & Noble) that Amazon doesn’t have.”
 

4. No one has yet succeeded in competing with Jeff Bezos at Amazon.com.

Barnes & Noble has enjoyed many days in the sun. When it went public in the fall of 1993 its stock “soared past its $20 initial
offering price to close at $29.375 on the New York Stock Exchange.” In 1999, with Amazon yet to earn a nickel in profit, Barnes &
Noble reported that its holiday online sales quadrupled from the previous year.
Yet, based on recent share prices, Barnes & Noble is worth less than 1% of Amazon. In the last year, Barnes & Noble’s shares
have dropped by over 30% in value (much of that in the last month), versus 4.4% for Amazon.
In the ongoing battle for bookselling supremacy, Amazon CEO Jeff Bezos consistently outguns Barnes & Noble’s
management. Amazon has established a commanding market-share that it uses to bat Barnes & Noble around – and
Amazon doesn’t care if it makes money selling books; Barnes & Noble has to.
As Richard Brandt notes in his new book, One Click: Jeff Bezos and the Rise of Amazon.com, Bezos is Amazon’s main weapon.
“Anyone could have copied Amazon’s strategy and reproduced its software,” he writes. “Several executives tried.” But Bezos
has “an original vision” that has kept the company ahead of its competition. Both publishers and competitors “think Bezos is
ruthless.”
Brandt quotes Owen Teicher, CEO of the American Booksellers Association, as stating that Bezos “uses books as loss leaders to
sell everything else. He’s acquiring customers in order to sell them whatever he can ultimately sell them.”
Still, customers love the Barnes & Noble brand. It ranked first in the 2010 Forrester Research “Customer Experience Index,” its
second year in a row.
But they love Amazon just as much. In ForeSee’s annual Holiday E-Retail Satisfaction Index Amazon scored 88 on a 100-point
scale, “registering the highest score from any retailer in 14 consecutive studies.” Barnes & Noble certainly had a strong
showing, but nearly 10% below Amazon at 81 points.
 

Best Buy as a Case Study for Barnes & Noble

The shape of things to come for Barnes & Noble is presaged by the recent struggles that Best Buy faces as Amazon steps up
the pressure in the electronics retail business. Like Barnes & Noble, Best Buy is primarily a bricks and mortar retailer.
The death of Borders is failing to deliver the hoped-for sales boost to Barnes & Noble. Michael Nowacki of Nowacki Asset
Management notes that Circuit City’s bankruptcy had also led analysts to expect that Best Buy would reap major sales benefits.
“Best Buy, however, did not see a significant increase in business. In fact, they have been struggling to grow same-store sales
and profits,” he wrote. Like Barnes & Noble, Best Buy is facing sales declines in brick and mortar while online sales increase –
but not fast enough.
Barnes & Noble is turning to toys and games as a safe-haven in a turbulent retail climate, while Best Buy isclinging to
appliances, where it doesn’t face as much competition from Amazon and other online retailers. As The Wall Street
Journal recognizes, defending against Amazon.com comes at a “steep cost.”