Why Barnes & Noble Will Never Be Great Again

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Why Barnes & Noble Will Never Be Great AgainThis isn't the way that Barnes & Noble (BKS) would have chosen to write its final chapters.

Watching its rival Borders liquidate this summer should have been its opportunity to grab market share, just as the cavernous book-selling superstore has benefited when smaller bookstores have had to board up and move on.

Rolling with the times by putting out a proprietary e-reader should have kept Barnes & Noble relevant, but a margin-slashing price war is exposing the retailer's financial shortcomings.

Times have changed, and Barnes & Noble can't go back and relive its glory years.

Numbers Are Bigger Than Words

Barnes & Noble is coming off another dreadful quarter. Back out the Nook and its digital downloads and you'll find that sales actually fell by 11% at its superstores and college bookstores. Unlike Amazon.com (AMZN), which is routinely profitable throughout the year, Barnes & Noble posted a wider-than-expected deficit.

Coming up short has been a recurring theme for Barnes & Noble. The struggling retailer has missed Wall Street's profit targets in each of the past six quarters, with five of those periods resulting in larger-than-forecasted losses. Analysts see Barnes & Noble posting a loss for all of fiscal 2012. They see a return to profitability come fiscal 2013, but we've seen how the prognosticators have overshot the chain's reality in the past.

We're now heading into the seasonally potent part of the year for Barnes & Noble, but how many holiday shoppers do you really think will be crowding the registers when they know that books and gifts can be bought cheaper online? Besides, now that so many people own a Kindle -- and to a lesser extent a Nook -- why insult gift recipients with an actual hardcover book?

Going the Way of Vinyl Purists

There's no denying that digital delivery is the future of media. We saw it happen with music, and now most of the record stores have closed down. We are seeing it happen with movies, as streaming and downloads replace physical DVD purchases. Video games are also being dished out by server farms to Xbox Live users and smartphone owners.

Why will physical books survive? Folks who love the smell of a new book or the sound of a page turning will want to check with musical purists who miss the grooves of vinyl or the shiny allure of compact discs. Progress is inevitable. Every quarter finds millions of bibliophiles making the switch to e-readers, and the migration continues as hardware prices continue to drop.

This doesn't mean that books will go completely obsolete. We may never see a world where everyone owns an e-reader or tablet. However, the demand for gargantuan dedicated bookstores will dry up -- and with that, Barnes & Noble's livelihood.

Nooks and Crannies

Pollyannas will argue that Barnes & Noble gets it. Unlike Borders, which begrudgingly warmed up to the more obscure Kobo reader, the superstore still standing has sacrificed its fragile balance sheet to make one final wager on the Nook.

Two years ago, Barnes & Noble may have felt that it could win a price war, but Amazon never blinked. The Kindle can now be had for as little as $79, far less than the entry-level Nook at $139. The Nook Color -- a real game-changer as a quasi-tablet at a compelling $249 price point -- will be clearance-bin fodder when the slightly superior Kindle Fire hits the market at $199 next month.

Barnes & Noble only had a quarter of the market before the Kindle dropped its price into the single digits and the Kindle Fire raised the bar on what a sub-$200 tablet can do. How much smaller do you think Barnes & Noble's market will get, especially as well-read Nook owners realize that the chain may not have the financial stability to last a whole lot longer if the deficits continue?

Barnes & Noble is in a lose-lose situation. If it slashes its prices to remain competitive, margins will get even worse. If it doesn't respond, it's back to relying on its fading superstores for a slower death.

I'm sorry, Barnes & Noble. Every page I turn leads to Chapter 11.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. Motley Fool newsletter services have recommended buying shares of Amazon.com.





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41 Comments

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TropeShelf

Oh hey, another repost from the Motley Fool containing incorrect or misleading information about pricing. If they can't even get the price right for the entry-level nook ($89), then why bother taking anything else at face value? Answer: You shouldn't. The Motley Fool has about the same "authority" when it comes to talking about stocks as drawing lots from a hat can tell you about the outcome of a horse race. When their contributors can't even be bothered to doublecheck simple things like the facts in their articles, I believe B&N has a more secure future in the longterm.

October 27 2011 at 12:30 PM Report abuse +1 rate up rate down Reply
rich1braw

I passsed and B & N in the mall today and noticed a sign, "coming soon our new gift dept." Being a retired retailer in conjunction with a published author, I said a couple of years ago B & N should open gift depts in their stores. And I don't just mean gifts that refer to books. Plus the gift dept has to have something for every price line from $5.00 to whatever.
There was a gift store in my area that was run for 50 years providing a huge selection of things (lady retired at 80 and sold building to another type of store) They had a distinctive box and free delivered within a certain area and then wrapped and shipped if it was outside their area. w
When that box came to your house you knew you were getting something nice, even if it was inexpensive. Their box was as distictive in their market areas as Tiffany's turquoise box.

That's what B & N has to develop. They already have the logo. Everyone knows B & N. They now have to evolve or die. That doesn't mean get rid of book, but it does mean they need more than board games and puzzles.

Richard Brawer
www.silklegacy.com

October 27 2011 at 11:11 AM Report abuse rate up rate down Reply
mannylovejj

I NEED TO IS THIS PROBLWM THEY HAVING IS GOING TO MAKE ME MONEY OF YALL, PLEASE LET ME KNOW SOON

October 27 2011 at 2:55 AM Report abuse rate up rate down Reply
fworfe

Permit me to splash a few sour grapes here for all the writers who work their 'tales' off to produce a great novel manuscript only to find that no matter how good and literary the work is, there is virtually no chance it will ever be published or even read by an agent let alone a publsher.
Where does the fault lie?
Well, for lack of a better answer, there is plenty of blame to go round several times.
Publishers are looking only at the bottom line sales in order to survive, literature be darned.
Literary agents are swamped with manuscripts that they cannot get published, so why should they take on another wirter or even peruse another manuscript no matter its quality.
If you already have a celebrity 'name' and don't really need the recognition or the money, chances are that you'll be contacted by an agent or a publisher to write a piece of junk that might make the publisher a few bucks before it's marked down to ten percent of original price.
And, perhaps to exaggerate only a little, there are more people writing books than there are people reading books.
The short-attention-span 'reading' public goes mostly for trash, if they read at all. If any of the classic novel writers of yore were alive today, he or she would starve within a week.
Yes, I know that English teachers would dearly love to find the answers, and they're trying hard to instill a modicum of love for literature in their students. My guess is that's an uphill fight.
Anyway, who am I to question 'progress'? Maybe all this has some evolutionary benefit not apparent to the sore and naked eye.
Meantime, back to that novel I'm trying to finish...and to the completed, unpublished other one that never sold...and to the finished non-fiction work that also never sold...for I have to write.

October 27 2011 at 1:40 AM Report abuse rate up rate down Reply
wufinz

Not so, not so . . . I buy some books and music online. However, as a bibliophile, I more often like to browse shelves. Amazon requires pretty much that I target what I am looking for. B & N allows me to drift among various topics, sometimes finding a book I would like in a place usually obsure to me (ie Self-Help, Philosophy, or Children's Books). I can also browse a plethora of magazines--perhaps this month HOGS has a favorite physicist or swimsuit model on the cover who is a biker. I might not subscribe to the mag, but if I see a person or a story topic that piques my interest, I will pick it up. Ditto the music and dvd section: I prefer to walk the aisles and grab things that might appeal to me. Maybe it is a Reggae Klezmer band or Placido Domingo covering Eminem . . .things I might never thought to have entered into a search box online. And then, there is the coffee -- grab some books or mags, sit with frineds and talk (yes; actually face to face communicating) at a leisurely pace while we decide which books or dvds or music to purchase.
Sorry Motley Fool, you can have sex online, but not coffee.

October 26 2011 at 11:47 PM Report abuse +1 rate up rate down Reply
June Jerrie

As for books, I saw a book I wanted for at least $15 at B&N. On Amazon, used alone was 1 penny, add in shipping and its $4.

I'd rather wait a week to get the book and save $11 than to get instant gratification and lose out on money that could be used to buy more used books that I want.

October 26 2011 at 11:26 PM Report abuse +1 rate up rate down Reply
powermetal2000

I miss Borders. They're stores put Barnes & Noble shame. They're non-fiction sections were 10 times the size of the ones at B&N. Their fiction sections were huge. Barnes & Noble is the FYE of bookstores, overpriced limited selection of the most mainstream items.

October 26 2011 at 11:25 PM Report abuse +2 rate up rate down Reply
1 reply to powermetal2000's comment
powermetal2000

And I just realized I wrote "they're" instead of "their", twice....that's what I get for trying to watch tv and type at the same time.

October 26 2011 at 11:26 PM Report abuse -1 rate up rate down Reply
June Jerrie

I'd say Barns and Noble have more to worry about from Amazon than from ebooks. I personally am still not fully on board with ebooks and if I do use it, I use the Amazon Kindle and the Kobo apps for my ipod touch. I only read ebooks when I am bored and have nothing better to do.

People still love real books very much and the idea of ebooks will not go full throttle for another couple of years if not decades since the choice of medium has not been decided on yet.

But Amazon in its entirety, cannot be competed with. I went to B&N a few days ago and for a season of a tv show on dvd, runs at least $40, most of it went into the $70s. On Amazon, it was more than half that price.

If patience is a virtue of yours and you are willing to wait a few days or so, you can save a lot more that way than through brick and mortar shops.

October 26 2011 at 11:20 PM Report abuse +2 rate up rate down Reply
sqnj

..Book tour, 2016.. "Hi, loved it,..would you sign my digital book?" .. Ok, How about a signature in my IPAD, and I'll print it, or maybe not. Soon, we will have digital signatures, that they can debate of real, on Pawn Stars.

October 26 2011 at 11:05 PM Report abuse rate up rate down Reply
jrp1947

The unfortunate part is that the bookstores are going to disappear simply because buying a "real" book on line does not involve rent, utilities, and excessive employees maintaining a storefront or taxes when computing the price of retail books in a store compared to on line ordering.

October 26 2011 at 10:51 PM Report abuse +1 rate up rate down Reply