“If Barnes & Noble is in its current form by the end of 2015, I’ll be very surprised.” — James McQuivey, Analyst, Forrester Research
Barnes & Noble had a tough year, but then the last 10 years have been tough.
Once the nation’s big name in books, B&N was once one of those very special big merchants like Walmart or Amazon that managed to be both widely adored and somewhat resented at the same time.
It was adored for its storytime, plentiful caffeine/ baked goods at the cafes and the general feeling of goodwill large piles of books tend to engender among consumers. It was resented for the steep discounts it could negotiate from publishers by buying in bulk and the deleterious effects it had on all those small-time mom-and-pop bookshops downstream who couldn’t compete with its big-box pricing model.
As the dawn of the millennium neared, Barnes & Noble was so unstoppable that Nora Ephron wrote a romantic comedy about it. At the turn of 2000, B&N held 15 percent of the total book market in the U.S., as opposed to Amazon’s 2 percent.
But even as early as 2000, the seeds of the iconic bookseller’s problems were surfacing. Barnes & Noble also held 15 percent of the online bookselling market, as opposed to the 75 percent Amazon had a stranglehold on. And even as consumers were learning to prefer ordering online to buying in-store, Amazon went and digitized the book with the release of the Kindle — the first edition of which was the first 3G mobile device most consumers ever tried.
And while the e-book didn’t live up to initial predictions and send real books packing the way the MP3 and then streaming killed the CD, 15 years into the new millennium, B&N is in a very different corporate place than it was. Today, the most commonly asked question about the company is about how much longer it can possibly survive, given the trail of other big bookseller tombstones Amazon has left in its wake (RIP Borders).
But Barnes & Noble, despite a tough year, remains sunny in its outlook — and committed to continuing to disappoint those who have called for the imminent demise for some time.
Few firms go down without a fight and let market forces overwhelm them, but Barnes & Noble’s answer to the inevitable questions about how they plan to remake themselves for the 21st century consumer is unique. Because B&N is not focused on talking up tech upgrades and the future of doing things differently, but instead talking about getting back to the basics of doing what it does best.
Amazon currently controls roughly 65 percent of physical and digital book sales in the U.S. according to Fortune. And while there is no shame in being beaten out by Amazon in 2015, it hasn’t been great fiscal times at B&N over the last decade.
In 2005, B&N’s total sales were $4.86 billion. In 2014, they were $6 billion. That is technically a $1.14 billion pick-up, but $4.86 billion adjusted for inflation is about $6 billion, so, really, sales have been flat for 10 years.
This year saw catastrophic dips in some part of the business line, particularly the digital division and the Nook tablet. Despite a high-profile partnership with Samsung on the hardware side, the generally diminishing market interest in tablet products hit B&N digital hard early in the year when it saw a spectacularly bad 50 percent decline. Though declines have leveled off a little – in the last quarter digital only reported 28 percent drop in in sales – the news is by no interpretation good, despite B&N’s continuing commitment to the product.
“Our Nook team continues to seek opportunities to stabilize, and potentially reverse, the decline in content sales in what continue to be a challenging environment,” B&N CEO Michael Huseby told investors on a conference call earlier this year. “We remain committed to supporting the Nook product, which remains an integral part of our future because it is important to our customers.”
The year also saw the spin-off of B&N’s college bookstore division in an IPO, releasing the 724 stores on college campuses which sell both traditional textbooks and digital educational content. Those locations that have been profitable for the company even as other parts of the business have flagged or stagnated. And while various representatives have affirmed their confidence in B&N’s standalone retail brand, the feeling seems to have waned throughout the years.
Even in unexpected places. Leonard Riggio — who bought Barnes & Noble in 1971 and led its expansion into the world’s largest bookstore chain as its longtime CEO and Chairman — even reduced his share in the firm. In 2010, Riggio owned 29.7 percent of B&N, an amount that was nearly halved to 15.8 percent earlier this year. Riggio did re-up his stake earlier this fall when share price plummeted 30 percent in a single day and he acted to calm shareholder panic. His current stake in the firm stands around 17 percent.
He’s also kept a relatively low-key presence in recent years. In an interview given earlier this year — when he had just cut his stake in the company he built by almost 25 percent — Riggio noted, “this is not a growth company.”
He further described the holiday season now underway as “really, really critical in terms of casting a die for the future.”
So how is B&N casting that die?
Buy online and pick up in-store gets a lot of press today as the future of physical retail, but for Barnes & Noble it also has the distinction of being their past. It’s been possibly online at most locations for over 10 years and possible by phone since the early ’90s.
And while the book chain doesn’t often get thought of as cutting edge, in many ways it was doing some things before it was cool.
A paid membership program that offers free shipping and discounts for an annual fee? Barnes & Noble has had one since the late ’90s, when it was widely critiqued for making members pay more for better perks than Borders, who gave away their membership cards to anyone who gave an email address.
Cool cafes that serve things that incline customers to stay, browse and occasionally buy a cheesecake? A regularly occurring feature at every Barnes & Noble since their partnership with Starbucks was first struck in 1993.
Events that make customers feel like part of a bigger community?
“This weekend and next, at thousands of locations around the country, families will be spending Friday nights in the children’s department to hear the annual reading of ‘The Polar Express,’” a B&N representative told PYMNTS. “Exact local variations vary from store to store, but hot chocolate and someone dressed as the conductor are pretty standard fare.”
Barnes & Noble, it should be noted, has seen its sales of physical books pick up in the last year, both online and in-store — and much of its negative growth has been attributable to a disastrous performance in digital.
On the other side, B&N has been gaining strength among a heavy spending and desirable demographic: millennial moms, who are drawn to the books, but also the ever-expanding selection of high-end educational toys and games on display at B&N. Over the last decade, the book chain has reorganized its interior layout with increased space for children’s and YA literature (and associated literary merchandise) and educational toys and games (often with a demo area). Barnes & Noble still sells books, but is increasingly a destination toy store for moms looking for what an employee referred to as “child enrichment products.”
Ah, nothing says Christmas like child enrichment products.
More festive than that description of toys is perhaps Barnes & Noble’s newest commercial, just released for the holidays. The commercial, incidentally, sprung from the efforts of the recently divested Riggio, who tapped his friend Tony Bennett and Bennett’s friend Lady Gaga to pitch B&N’s newest tag: You never know who you’ll meet at Barnes & Noble.
It’s a little old, a little new, but pretty, festive and a reminder that your odds of bumping into anyone — pop star or otherwise — are very low if you shop from home. Not to mention the chance to see her fabulous green jacket and shoes in person.
But consumers perhaps have demonstrated over the last decade that by-and-large they are comfortable ordering their books at home in PJs, and Barnes & Noble has yet to prove that doing what they’ve always done — perhaps just a bit better — is going to be enough to support a business model that consumers are rejecting with foot traffic that seems to keep falling.
But books are somewhat different — and there is something undeniably appealing about a retailer committed to reading “The Polar Express” to children while they sell their parents extremely educational toys for Christmas.
So will B&N get the Christmas miracle that everyone says they need? Stay tuned — the shopping has just started.
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