Barnes and Noble’s Disappointing Quarter

Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.

BN - 38ensoB&N released their Q1 Fiscal 2014 (May, June and July 2013) sales yesterday. The numbers were disappointing although not altogether surprising.

  • Superstores revenues decreased 9.9% but still made $65-million.
  • College stores sales were actually up 2.4% but lost $19-million.
  • Nook revenues were down a stunning 20.2% and lost $55-million.

The results were not much of a surprise to Wall Street or the publishing industry.  The Nook is bleeding money and losing share whereas the Superstore bricks and mortar locations continue to produce profits. Although the stock closed down 12% yesterday, it was probably more of a reaction to the statements of the B&N executives than the actual results.

B&N Executives Responses not Helpful:

The terse comments by the leadership of B&N were a surprise. Instead of delivering a strong statement that things will change and that these losses were unacceptable, the statements were more of maintaining the current course and didn’t acknowledge that the past strategy is not working.

“Our top priority in our operating strategy is to increase all categories of our content revenue. We are working on innovative ways to sell content to our existing customers and are exploring new markets we can serve successfully,” said Michael P. Huseby, President of Barnes & Noble, Inc.

This statement from the official B&N press release says little. They want to increase revenue, sell more to their existing base and explore new customers. These are the goals of every retail business.

50 Shades and Hunger Games at Fault?

B&N also blamed the decline of poor comp sales because there weren’t any new titles to anniversary the tremendous sales from the trilogies of 50 SHADES OF GRAY and THE HUNGER GAMES. Granted these were monster titles, but to take out the biggest six titles of any year would force a negative comp.

It is an easy excuse to blame the lack of blockbuster titles for the decline but it doesn’t do much to solve the problems. In some ways it illustrates a weakness. The fortunes of the company are less in their control but reside with publishers to create the right content.

Nook Continues to Struggle:

The continued loss of sales and market share of the Nook is a major concern. B&N’s decision to continue to build the Nook device and also introducing a new version this fall surprised many investors. They are continuing a strategy that has cost hundreds of millions of dollars with uneven results.

When consumers decide on which digital company to buy from, having trust in that company is imperative. Given most digital goods are not “owned” but “leased” from the retailers, having a stable company holding your assets is important. As B&N continues to struggle with the Nook, consumers may shy away from using them because of their uncertain future. What happens to the digital “purchases” if the company is no longer around?

B&N also suffers from competing with two of the most formidable companies in the device/content/digital delivery business. Apple has amazing devices and Amazon is the most powerful Internet retailer in the world and can push the Kindle to their customers. Regardless of the good reviews the Nook has received, creating devices is a losing game for B&N. A tech company like Microsoft (owns 17% already) needs to become active or Samsung (rumored to be entering the eBook business) might be a better partner for the Nook and more able to compete on devices.

Superstores and Nook Continue Together:

Also announced was that B&N builder and CEO Len Riggio has withdrawn his bid to take the stores private and separate from the digital business. Many felt that separating the two was a sound strategy to allow each business to have total focus. Perhaps there may still be a separation. But today’s call offered no inkling of a sale.

The B&N Superstores are still a valuable business and continue to make money. Although the physical stores need a lot of work, taking the profits out of it to support the Nook business is not going to help the bricks and mortar solidify their position as the largest book chain in the USA. B&N recently settled their differences with corporate publisher Simon & Schuster and eliminating that distraction should allow them to focus more on selling books and not fighting with key vendors.

The Nook still has over 20% market share. But the losses continue to mount. The eBook landscape is only going to get more competitive. So B&N should look to find a strong, active tech partner to drive this emerging business. The Nook sales trends are going south and B&N needs to do something dramatic to stop the decline before it is too late.

The constant negative results have taken a toll on the company. The seemingly lack of accepting that fact and not seeing change from upper management is disappointing.

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