Jason Anand - 199007

Harsimran Singh - 199012

Harmanjeet Singh - 199025
Anmol Reet Singh - 199042
Shivam Sharma - 199044
Utsav Saha - 199051
 1. Introduction

Barnes & Noble (B&N) is the world’s largest retail bookseller. The company operates over 600
Barnes & Noble bookstores in all 50 states of the United States.[1]
Even though the history of the company can be traced to 1873, the company, as it is in the
present, was the brainchild of Leonard Riggio. He acquired the company and merged it with his
own bookselling business.[2]

The ups and downs of the bookstore chain paint a tale as gripping as the plot of a bestseller.

In a 1999 interview, Riggio said he believed that: “independent bookstores were too small to be
efficient and customers had to wait weeks for special orders” therefore it was necessary to go
big.
To make these big stores cozier, he installed sofas and coffee bars. But the expansion of his
superstores posed a problem to many independent stores, forcing them to close shop.
In an ironic plot twist, the disruptor has been disrupted.[3]

In 1996, the 31-year-old Jeff Bezos, was approached by Riggio, for a collaboration. At that time
the startup, Amazon, had an annual sales of $16 million, and B&N $2 billion.

Riggio told Bezos that B&N would soon start a website of its own and destroy Amazon, and
counseled him to work with him. Bezos declined.[4]

Today, Amazon commands around one-half the market share for print books, and B&N one-fifth.
Meanwhile, Amazon's share of e-books is 85%. B&N has just 4%.
Today, Amazon has a hold over 72% of adult new book sales online and 49% of all new book
sales by units. As Amazon has risen, the sales at B&N have taken the opposite route. In the
year 2018, the total sales came to $3.66 billion, down by nearly $1 billion from 2014. [5]

2. Porter’s 5 Forces
2.1. Supplier’s power
The power of book suppliers, the publishers, is relatively low as there are many suppliers and
many books to be sold. Only in the case of books that are expected to draw very high demand,
do the publishers possess significant power.
Barnes & Noble executives have noted in the past that publishers have given preferential price
treatment to smaller, discount bookstores. To address this, Barnes & Noble attempted to buy
Ingram Books, the largest US distributor of books, in 1999. in a deal that would have greatly
enhanced its negotiating power with publishers. The acquisition, however, was called off due to
antitrust concerns.

2.2. Threat of substitutes

The bookstore and online bookselling industries face threats to demand in the form of
substitutes. The reading of books can be considered an educational pursuit or for entertainment,
or both. Other forms of education and entertainment thus can serve as substitutes for books. In
terms of education, e-Learning, where training is conducted online or books can be read in an
electronic format, has increased in popularity, and the Internet has become an important source
of information.

2.3. Threat of new entrants

A significant barrier to entry in retailing is that customers are highly brand loyal. Many
consumers will visit the same store for all their related needs. Of these consumers, some may
be attracted to other stores by the knowledge of lower prices there, while some stores may try to
maintain their traditional purchasing routines because of factors such as service quality. The
best way to steal customers from existing firms, though, is to offer low prices, attracting those
consumers who place savings before sentimental attachments. This is what made the
superstore format successful under such names as WalMart, Home Depot, Barnes & Noble and
Borders. They were able to offer lower prices due to economies of scale and they thus captured
market share from existing "mom and pop" stores, putting many of them out of business.
The threat of significant entry in the current bookselling market is moderate. It is very expensive
to enter the market with a superstore format and may be very capital intensive.

2.4. Buyer’s power

Select instances occur where the buyer has significant power, such as in the case of textbooks,
which are often bought in bulk with great competition. Bookselling also tends to be
price-competitive as stores are competing for the same price-sensitive consumers. However, as
a whole, the power of each individual buyer in the bookselling industries is relatively low, for
they do not tend to buy in large quantities and there are many buyers.

2.5. Internal Rivalry

In its core business, store-based bookselling, online bookselling B&N faces strong competition.
In store-based bookselling, Barnes & Noble faces Borders, a competitor with relatively
equivalent market share but strong financials including better profitability ratios. The many
sellers in this market help to contribute to significant internal rivalry in the industry, and there are
other contributing factors as well. A factor is that bookselling is a relatively low growth industry,
so most sales growth is obtained by stealing market share from competitors. The
undifferentiated nature of the product, and the fact that buyers have low switching costs further
contribute to internal rivalry.

2.6. Conclusion

Forces Threat to Profits

Supplier power Low

Threat of substitutes High

Threat of new entrants Moderate

Buyer power Low

Internal rivalry High

3. Product Development - Crossing Swords with Kindle

With the increasing usage of the internet and the prospect of non-print books being a viable
market, B&N wished to tap into it. Besides directly selling the books, it also decided to develop
its own e-reader.

But the strategy did not work well for B&N. It bet aggressively on its Nook e-reader to go up
against Amazon’s Kindle. Released in 2009 to compete with Kindle released in 2007, the Nook
was already a few years behind. From that point on, the product would fail to catch up with the
competition.[6]

[7]
The reasons for this failure were numerous.

Marketing: B&N did not market the product properly to set it up for success. There was
confusion as to what B&N was attempting to be, they took people from the store to create the
development team; most of whom were not experienced in developing and launching a product.
These initial miscalculations did not allow for a successful introduction of the device and a brand
name couldn’t be formulated for the product.

Functionality: B&N eventually came out with a color version. On the other hand, their
competitors were launching tablets like Amazon’s Kindle Fire, the Samsung Galaxy. The Kindle
itself was much more cost-effective and cost almost half what the Nook was being sold for. The
Nook had the worst of both worlds, with it neither being a cost effective e-reader, nor a full
fledged tablet.

Customer Experience: Despite receiving positive feedback through 2010. Customer feedback
did a turnaround. The existence of handicapping glitches and inefficient customer redressal
were the major concerns. Some newer models did not even have enough space to download
complete ebooks. This impediment to the basic function of the product is attributed to be the last
straw. [8]

Nook was kept “alive too long,” notes Wharton professor of business economics and public
policy, Katja Seim. “With a huge range of products like e-books and e-readers, it seems hard to
believe they will be able to catch up with Kindle and Apple”. B&N, she adds, is bound to lose
playing Amazon’s game. [9]

4. Diversification

B&N, under Barnes & Noble Education, Inc. has also concerned itself with retail selling of
textbooks and educational materials. The biggest entity under it is Barnes & Noble College,
which contributes to over 80% of the revenue. It is a market leader in this segment, and an
increase in sales has been observed over years. Today, it has partnered with over 1400 colleges
and has its stores in their campuses.[10]

To attract more people, the company has been trying to improve its merchandising offerings,
narrowing product assortments, increasing promotional activities, making navigation in the
stores better, enhancing product discovery, parsing the data from its membership program to get
insights about the customer, adding in-store events, as well as experimenting with smaller
prototype stores.

It has had some success: Non-book sales (toys, café products and services and the like) grew.
This business composed 31% of total revenue from the previous 28%. Meanwhile, sales of the
company’s core media business (books, newsstand, movies and music) weakened, composing
67% of total revenue from 69%. In the meantime, B&N has been trying to cut costs to protect
the profits.

But its efforts, obviously, were not enough. Several experts are of the opinion that it has not
given customers enough of a reason to come into the store. For instance, If a shopper wants to
get a meal, a cup of coffee or toys, they won’t necessarily think of going to a B&N to do so. Even
if you want to buy a book, it’s easier to buy it online even if you want a physical book.[11]

5. Going private [12]

On June 7, 2019, Barnes and Noble agreed to be acquired by U.K. hedge fund Elliott Advisors
for $683 million.
By becoming a private company, it wished to ease some of its troubles by no longer having to
worry about quarterly sales reports. A daunting task lies in wait for James Daunt, the CEO of
Waterstones who will also run Barnes & Noble. A former bookshop owner and avid reader,
Daunt said that B&N needs investment, not further cost cuts. “The simple fact is that B&N needs
money: People want to shop in places that look clean, modern and inviting. The stores look tired
and need a little botox.”
 6. A silver lining?

The 2020 pandemic brought a ray of hope for the company. A surprising number of consumers
were once again buying books in print.
Industrywide, US sales of books were up 20 percent from 2019 over the same time period.
"Double-digit growth has not been seen in books since Amazon came along," B&N Chief
Executive James Daunt said in an interview.

Even more surprising to skeptics who had seen the bookstore chain shrink in the face of
Amazon’s rise, the retailer says teenagers and tweens are helping to fuel the surge. Sales of
Manga and Graphic books at Barnes & Noble are up by as much as 500 percent at some stores
where young adults are crowding in the aisles.
"The rise of an increasing popularity of Manga and graphic novels is bringing to our stores —
our stores are just full of young people, and that's exactly the demographic that you want in your
stores." said James Daunt. [13]

Taking into consideration the products sold by the company, along with their share and growth
potential, they can be characterized in the following way:
Star: As stated earlier, B&N College is a market leader when it comes to the textbook and
educational category. With more universities opting for on campus bookstores, the growth rate
of this subsidiary and its products is significantly higher, making it one of the most profitable and
safest businesses for the company.

Question Mark: As seen previously, a significant growth has been seen in the comic and
graphic books sector. Presently, B&N’s market share is low, but it remains to be seen if and how
they will be able to capitalize on this surge in popularity.

Cash Cow: Disregarding the electronic sales of the product, B&N has a significant market,
when it comes to the retail selling of books. By virtue of the nature of the industry, the market
growth rate is low, making this product line a comfortable but less growth oriented entity.

Dog: As illustrated previously, the company’s bet on its e-reader did not pay off. It neither has a
good market share, and the market itself is saturated with the presence of bigger and better
established companies and their products.

7. Competitive Strategy
A Focused Low-Cost Strategy is in place for this company. There are numerous ways in
which the original prices of books and other products are cut. Hardcover best sellers can be
purchased at a price 30% less than its retail value, while select children and computer books
can be bought at a 20% discount. Additional discounts are provided with in store purchases
through joining the Barnes and Noble Member program at a $25 yearly fee. This includes 40%
off of Hardcover best sellers, 25% off adult books, and 10% off of almost any other merchandise
in their bookstores. BarnesandNoble.com has an “everyday low pricing” model that provides a
single low price to both members and non-members that decide to purchase from the site.
However, members have an advantage with free shipping on select items on the site. Another
benefit of being a member is receiving ads and discounts through the mail. The company’s low
pricing strategy is partly due to it competing against other companies that sale books and other
products at low prices, such as Amazon.com and Wal-Mart.

8.Conclusion

Major Issues

Issue 1- The first issue that Barnes & Noble faces is the reduction in profit margins. This is
caused by an increase in competition with major competitors such as Amazon. Also,
government regulation is increasing in the on-line retail sector. This will increase the cost of
on-line sales which is a major part of their business.
Recommendations: Barnes and Noble to market eBooks and eReaders inside its bookstores.
Some people see no need in a bookstore when they can sit at home and read a book on their
computer. Others enjoy the experience of a trip to the bookstore. By selling both paperback and
e-readers at the bookstore Barnes and Noble can capitalize on both markets of people. An
individual may take a trip to the bookstore, get a cup of coffee from starbucks and sit down and
read a book with their e-reader they purchased from inside the store.
The company should highly differentiate its products from competitors to make them more
appealing in the marketplace. The company has started this process by introducing its NOOK in
a color version. This technological advancement will help the company attract more customers
to gain more share of the eReader market.

Issue 2- The second major issue that Barnes & Noble faces is its decline of physical book
sales. New technology has driven many consumers to purchase digital books instead of
physical books. There has also been a decrease in government funding for college students in
addition to the rising cost of tuition paid by college students. This has caused college enrollment
to decrease which has also affected the sales of physical books. If the company does not keep
up with the emerging technologies in the industry, they could lose a significant market share.

Recommendations:To expand the company’s eBook sales with select

and exclusive products. With a large portion of their current market converting to Electronic
readers Barnes & Noble should focus keeping up to date with emerging technologies as well as
expanding their current eReader market. By offering new products for the eReaders Barnes &
Noble can set themselves apart from its competition. This could easily be done by offering
eBooks that are unique to what competitors are offering. They could also expand their electronic
product mix by carrying an extensive database of eMagazines and eBooks that appeal to niche
markets.

The reason for choosing this alternative is because by increasing select and exclusive
content for the company’s eBook (the Nook) it will increase customer loyalty and increase brand
recognition for the Nook. This is very important to the company due to the high level of
competition with Amazons Kindle. By increasing brand recognition and customer loyalty B&N
may be able to beat Amazon for dominance over the industry market share.

Issue 3- The third major issue that Barnes & Noble needs to address is the company’s lack of
effective leadership in its effort to sell the company. One example of this is the division in their
boardroom.“There has been division between supermarket billionaire Ron Burkle and its
founder and top shareholder, Leonard Riggio.[O]” These two executives have had quarrels and
issue with each other for some time. This is a crucial issue for this struggling company that is
looking for a buyer.

Recommendations:An option to resolve this dissonance in the boardroom is hire a third

party consultant to handle the sale of this company. With a split boardroom, it will be
very hard for the company to resolve this issues that will arise from the sale of a
company. This could prolong the sale of the company and frustrate the buyer. Having a
third party consultant that both sides of the boardroom agree upon would provide a non-
bias result in a timely manner. This will provide the company with a result that is well
suited for the company and is in the best interest of all the shareholders.

This recommendation is the result of the companies need for decisions to be made in a timely
manner. With the company being in a fragile state, it is important the decisions be made quickly
before the situation becomes worse than it is. With each day, Barnes and Noble’s financial
situation becomes worse and the company loses value. This alternative will also provide stability
for the company. If the shareholders see stability in the company, it will restore their confidence
and increase the value of the company.