What's Barnes & Noble's survival plan?
Former CEO cuts his holding to 20% but says, 'the story in't written yet.'
In mid-January, Daniel Fidler worked his final day at what was Barnes & Noble's (BKS) store in Chestnut Hill, Mass., putting in a few extra weeks stripping out books and bookcases after the store closed at the end of the year. "I was depressed but I kept a smile on my face because I didn't want to think about what would happen," said the 24-year-old, who is still looking for a new job. "We had a party at a restaurant, and everybody who left came back, but it was bittersweet."
Barnes & Noble is making its last stand in towns just like Chestnut Hill. Its 663 stores still stretch across all 50 states, but there are 63 fewer than five years ago. Stores in Georgetown and the heart of Greenwich Village have closed. Gone, too, is the rambling college store in Manhattan's Flatiron district that was the sole Barnes & Noble retail property when Leonard Riggio bought that business in 1971.
A franchise built on cappuccino, children's story time, and tables stacked with the latest from Stephen King, Neil Gaiman and Doris Kearns Goodwin is retrenching. A shrinking market for print books, competition from Amazon.com (AMZN) and the costs of investing in its own e-reader and tablets had led to three straight years of losses.
On Thursday, Barnes & Noble Chairman Leonard Riggio disclosed that he had sold nearly a quarter of his stake, his second stock sale in five months, reducing his interest to 20% from 30 percent last year. Less than two weeks ago, John Malone's Liberty Media (LMCA) sold most of its big investment in Barnes & Noble.
Speaking of the consumer stores business that accounts for most of Barnes & Noble's revenue, Riggio said in a recent interview, "This is not a growth company." He is already looking ahead to what he describes as a "really, really critical" Christmas shopping season "in terms of casting a die for the future."
Barnes & Noble shares dropped 12 percent on Thursday on news of Riggio's sale, which he said he made for estate-planning purposes. Maxim Group analyst John Tinker, who has been bullish on Barnes & Noble in recent months, described the sale as "obviously negative."
The 73-year-old Riggio remains bullish on the company. In the extended interview a few weeks ago, he said, "In my mind, the story isn't yet written as to where this is all going. There's promise to it." He reiterated that sentiment on Thursday.
But the tide of history may be flowing against the retailer. In recent years the rise of e-commerce has killed some well-known brick-and-mortar stores, including Circuit City and Borders Group Inc.
Forrester Research analyst James McQuivey said he is hard-pressed to name any traditional companies selling physical media that have shown revenue growth since consumers warmed to digital books, movies, and music.
"If Barnes & Noble is in its current form by the end of 2015, I'll be very surprised," he said.
Some publishers say they are concerned about Barnes & Noble's future and are looking for additional revenue sources. Several are already contributing titles to emerging subscription companies such as Oyster, and Scribd Inc., which charge a monthly fee for an all-you-can-read Netflix-like experience.
Barnes & Noble has widened its offerings to include educational toys, games and other nonbook categories, which carry higher profit margins. Revenue for that category jumped 12 percent in the recent Christmas quarter. At the same time, the retailer has cut back on its book inventory: Its stores, depending on size, carried about 21,000 to 170,000 titles in 2013, down from 60,000 to 200,000 titles in 2004, according to SEC filings.
"There's just not enough books (in the stores)," said one book industry executive who asked not to be identified. "They've got to get back to basics."
Riggio, though, said that Barnes & Noble needed to reinvent itself. "I yearn for the days when we could just sell books because that's where I started," he said. Ultimately, he said, reality set in, and Barnes & Noble had to widen its offerings.
This time last year, Riggio was contemplating buying Barnes & Noble's consumer stores from the public company, leaving behind the college stores and its Nook digital business. After months of thought, he abandoned the idea, partly because there was a gap between the publicly perceived value of the book stores and the reality of the company's market value. He was also sensitive to suggestions he was looking to buy the stores cheaply.
Still, he said that operating the stores privately would have been best environment for a company "that's never going to have a soaring market cap."
Barnes & Noble's struggles are an unwelcome coda to Riggio's 50-year career as a bookseller. His understanding of where and how consumers want to buy books prompted him to purchase a chain of mall stores in the 1980s, only to reverse course and bet Barnes & Noble's future on costly superstores, trouncing independent bookstores in the process.
"He had a genius for selling books," said Jane Friedman, chief executive of digital publisher Open Road Integrated Media Inc., who first met Riggio in the mid-1960s when he owned the Student Book Exchange bookshop in Manhattan. "That's what distinguished him. His life was books. He believed in the word."
He gave up the CEO post in 2002. Although he has remained closely involved, he leaves running of the company to Michael Huseby, the former cable-TV executive recently appointed as CEO.
"I'm the chairman, I'm a board member, but it's not like I'm pulling strings here," said Riggio, looking thinner after recent bouts of knee surgery. "It's more like I'm coaching. … I don't have the time for it and the CEO's job here is an all-in job."
He also acknowledged that strategizing is tougher nowadays. There was a time, he recalls, when "I could say that I could see around corners with ease. Then you reach a point as you get older and as things get more complex, you don't see as clearly around the corners. You've got to have people who do that for you. "
Over the past decade or so, a series of missteps -- e.g. failing to invest aggressively in online bookselling when Amazon was first expanding -- left Barnes & Noble vulnerable to a new rival offering more convenience, a bigger selection and cheaper prices.
Barnes & Noble was also caught dozing by digital books and devices. It wasn't until 2009, two years after Amazon introduced its Kindle e-reader and digital bookstore, that Barnes & Noble launched its own e-book store, followed by a Nook e-reader. Heavy losses on the Nook has forced the company to retreat. Although it expects to introduce a new tablet later this year, it will likely be in partnership with an outside manufacturer, reducing costs and risk.
Huseby's strategy has been to fine-tune the still-profitable consumer bookstores and light a digital spark at its college bookstores. Revenue at the Nook business and both its consumer and college store businesses fell during the all-important holiday quarter for the second consecutive year.
There are some bright spots on the horizon. The growth of digital reading leveled off in 2013, and Barnes & Noble's consumer stores generated better-than-expected Christmas results. Excluding Nook digital products, sales at stores open at least one year, a key economic indicator, declined only 0.5 percent in the quarter ended Jan. 25, a sign of stabilization.
The company also has a strong balance sheet. It ended the latest fiscal quarter with $490 million in cash, up from $214 million a year earlier. It must repay a $127.5 million note owed to Riggio later this year, but the company doesn't have any borrowings under its credit facility.
These days, Riggio said, he tends to focus on the parts of the company that "may seem small to other people." What he still enjoys, he said, is getting "involved in copy, in little details of graphic language. I'm not a meddler. People will come and say, 'Len, what do you think of this or that?' I'm a creative soul. I like doing that. I like creating."
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I had the opportunity to observe firsthand why Barnes and Nobles is imploding and it's not the market change but management. They seem to think that paying minimum wage to part time employees without a clue or love of books is the way to attract people to buy there. Survival in this market comes from providing something an Amazon, Walmart or digital format can't provide; actual people who read and understand literature. Walk in and ask any of the employees about a Hemingway or Steinbeck and they will ask you “is this a new release”! No idea of anything about literature.
We are seeing the return of Vinyl records and I believe that we will see a resurgence of people reading books. Nothing compares to the feel of a book as you read it.
Barnes and Nobles, get a clue. Hire Full Time personnel who know about books and offer service not seasonal trinkets and the buyers will return. As long as you try and compete with the online big box stores and digital on their own ground, you will lose!
I am a huge fan of Barnes & Noble and while nothing will ever beat holding a book in your hand...I welcomed and got right on board with their Nook which I love despite the higher prices for books than Amazon. I even upgraded to the latest Nook that came out a couple of years ago. I go often to read in the store with my Nook or a hard copy often ending up buying one or the other or both sometimes. I enjoy a coffee while there.
Here's my issues with B&N:
Pricing books online cheaper than the store is just silly and damaging to their business, frustrate people and they will just move on. (I have gotten one book at the same price as the store that was deeply discounted with free shipping...surprised me pleasantly)
The café is not as useful or enjoyable as it used to be...people talking on their cellphones, loud conversations that disrupt reading or studying...maybe separate areas of the store for chatters. Also if you leave you're taking your chances on getting your table back when you return
The book stock is visibly and greatly reduced in selections and availability when you're shopping for one you want.
Very understaffed...almost always one checkout open and a line
Never anyone at the Nook counter anymore...if you have a question you're on your own
Dirty bathrooms that smell...very yucky...especially if you're planning on being there a while to read or study and you have a coffee or water
Having said that there are so many more things that are right with B&N than wrong in the end and I hope they fix what's not working and keep the core of the B&N experience. I have grandchildren who love to go to B&N and shop for books and all kinds of things. Tap into your customers opinions about what they want in a book store experience, smartest thing B&N could do, go to the people who have supported you over the years! I've had the discount card longer than I can remember and still find it to be a good value! Here's one customer hoping B&N won't be going away anytime soon!
"written work" will always be around. how to see and consume this written work must be a tricky thing to figure out.....
but if/when a CEO drops his share to 20%, it sure does make one wonder. especially if it's "estate planning" and he still leaves 20% on the table. is their a SEC rule that forced him from selling everything?
Lol, good the B and N in Pueblo, Colorado have nothing but arrogant people, the managers will screw you over in a minute. If you haveever done business with B and N as business to business they will beat you down on the price, then take forever to pay you.
So Barnes and Noble, you get what you deserve.
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