Why Barnes & Noble Will Never Be Great Again

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barnes noble store nook electronic reader earnings stocks investing
Jae C. Hong/AP
It may be time to close the book on Barnes & Noble.

Folks just aren't buying physical books these days, and the retailer's Nook hasn't been the lifeboat that the company envisioned when it rolled out a way to cash in on the migration to digital reads. The death of rival Borders -- an event that seemed to trigger an opportunity -- is now merely a literary practice called foreshadowing.

Shares of Barnes & Noble (BKS), the last major bricks-and-mortar bookseller, took a 12 percent hit Tuesday after announcing disappointing quarterly results.

Revenue declined 8.5 percent, and it could have been worse if not for a slight uptick in Barnes & Noble's college bookstore business. At the namesake stores that we all used to frequent more frequently, same-store sales plunged 9.1 percent.

Investors used to dismiss weakness at the retailer's physical stores, figuring that the company would eventually make that back through its digital e-reader initiatives. Well, the news is even worse on that front, as Nook revenue fell by a little more than 20 percent during the period.

Everyone knows how this story will end, even if there are too many people that don't want to spoil the ending for others.

Nook Is Not the Hook
Several months ago it seemed as if the troubled chain had at least two ways out of this mess.

Microsoft (MSFT) paid up for a minority stake in the company's Nook and college bookstore business. Founder Leonard Riggio expressed interest in acquiring the original retail bookstore business.

It was perfect. Microsoft or any of the subsequent Nook investors could've acquired that subsidiary to take on Apple's (AAPL) iPad or Amazon.com's (AMZN) wildly successful Kindle. Riggio could have then taken back the namesake bookstore chain that he started. Even if one walked, shareholders would be able to cash in on the money raised by selling the other.


Well, that story doesn't have a happy ending either.

Riggio revealed on Tuesday that he is withdrawing interest in taking the retail business private. This leaves potential interest in the Nook business, but who wants to buy a fading digital platform?

Nook's 20.2 percent decline in sales during the last three months hurts, but what's even worse is that devices and accessories revenue tumbled 23.1 percent in that period. In other words, the interest in Nook by new readers is fading even faster than the digital sales to existing e-reader owners.

Why would Microsoft want that? Nook is not much of a hook, and it's not as if the software giant doesn't have enough to worry about in trying to revive its operating system at a time when PC sales are falling nearly as quickly as Nook sales.

Excuses for Dummies
There's no shortage of scapegoats.

Barnes & Noble blames the retail-level weakness on a lack of hit titles. It points to last year's success of the "50 Shades of Grey and Hunger Games" trilogies in propping up sales. However, even the chain concedes that comps would have still been negative even if neither trilogy existed last year.

In explaining the continuing slide of Nook popularity, Barnes & Noble offers up another excuse that doesn't hold up.

"We spent substantial time and resources last year preparing our individual businesses to operate independently in anticipation of the potential for their separation," Nook's head said during Tuesday's conference call. Now that the trial separation isn't working -- the chain and the e-reader are stuck with one another -- Barnes & Noble feels that it can work on integrating the two businesses.

That's a tough chapter to swallow. It's hard to see how two platforms fading in popularity can help one another at this point. Amazon has no problem growing its Kindle business, and it's doing so without any kind of store presence.

Borders tried to push its non-Nook and non-Kindle e-readers on its shoppers all the way until the end when it had to mark them down in its liquidation sale.

Final Chapter
The near future doesn't look pretty.

Barnes & Noble continues to forecast declining sales for the entire fiscal year.

Wall Street's paid to have a longer view, and that's only uglier. Analysts see Barnes & Noble's deficit widening from $1.01 a share this year to $1.28 a share next year and a brutal $2.45 a share loss the year after that.

We know how this story ends, and today's investors may be well served by more savvy market watchers ruining the ending for them before the ending ruins them.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and Microsoft.


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14 Comments

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waterpixie00

I was an BN employee for years, and very recently quit. Best decision I've ever made. At one point in time, their staff were valued assets that knew what a customer wanted before the customer did. When they came in with pieces of information, the booksellers could figure out exactly what it was they were looking for. We were treated like we mattered and were an important part of the Barnes and Noble brand.

Then came Mr. Lynch and the nook, and suddenly we were no longer an asset, but a line item cost on a spread sheet. Long term employees were inched out the door in favor of expendable minimum wage employees who barely know what books are, who don't care to keep up with current popular books let alone the more obscure titles. We went from being staffed well enough to help the customers and keep them happy, as well as keep the stores clean and organized. Now, an employee is having a good day if they only have to do three things at once.

If Barnes and Noble wanted to know why sales are down, they just need to talk to the few long term booksellers who are left. A few reasons?
1. Not enough employees on the sales floor. When you have one person working customer service and five people needing help, those are potential sales walking out the door when they can't find what they're looking for and everyone is too busy to help them.
2. Not enough book knowledge in the staff. Most of the new minimum wage hires barely know James Patterson. When a customer wants recommendations, they can't give them one. More potential sales lost.
3. The reason they come shopping in the store instead of ordering it cheaper at home is because they want it and they want it now. Too much square footage is wasted on toys and games and puzzles and gift items. Using the floor space to carry more back list titles so they could take it home right away would also help. They think people order from our stores when it isn't in. Wrong!

But what do I know? I only worked for the company for 12+ years

August 23 2013 at 5:11 PM Report abuse +1 rate up rate down Reply
voyagerdjc248

Digital will NEVER equal the feel of a book in your hands. I buy books for myself and as gifts. And I dearly love to inscribe that special book that I pick out especially for my friends and family members. There is no better gift than a book that someone knows you want, with a special inscription. Sorry, but sitting by the fire holding that cold Nook, or Kindle will never compare to reading a book by the firelight in a cozy room while watching it snow outside.

And if parents would get their head out of the clouds, and share books with their preschoolers--yes preschoolers, because that is the optimum time necessary to begin a lifetime love of reading--then this generation would understand that books can and will take them anywhere they wish to go in life. Good luck trying to do that with a video game.

August 22 2013 at 2:48 PM Report abuse +1 rate up rate down Reply
Shaun Hutchinson

Barnes and Noble may be on the brink of collapse, but not because people aren't reading physical books anymore. People who sound that horn seem more invested in making it happen than in the truth.

Here's some truth:

Digital book sales still make up less than 25% of total book sales, and the growth of the digital book market has declined to just 5% this year, down from 30% the prior year and 160% the year before that.

Ebooks have their place, but people love physical books too, and they're not going to go anywhere anytime soon. I think that if BN collapses, we'll see indie bookstores rise again, and that wouldn't be such a bad thing.

August 22 2013 at 12:09 PM Report abuse rate up rate down Reply
Stephen

Book stores are a thing of the past...what with kids choosing to play war games on their various game boxes instead of reading...
How can literature compete... with the ability to kill 100s of people in a matter of minutes...on your TV screen. Times have changed.

August 22 2013 at 11:34 AM Report abuse rate up rate down Reply
1 reply to Stephen's comment
whoisjohngalt.john

Agreed. Sadly, classic intelligence gleaned from the masterworks of humanity are bing eclipsed by instant gratification and button mashing.

If breeders bothered to parent even a little bit, literature might still have some value. Sadly, parents these days are as vapid as the fat, entitled little bastards they've spawned.

August 22 2013 at 2:14 PM Report abuse rate up rate down Reply
hornet1327

First off, the price of a paperback book is horrendous. Upwards of ten dollars or more plus tax in most states. It's a paperback book. Surely the cost to print and bind it isn't going to be as high as a hardcover, right?
Secondly, brick and mortar locations are bound by how much product they can stock and move at any given time. I go to the local little book and card shop in the center of my town, and can never find anything remotely new to purchase. I go online and can easily find a range of books, music, movies, even video games that fall into my range of interests, and if I can't find what I'm looking for on one site, I can just pull up another on a secondary tab and check that other site with absolutely no gas expenditure.
So, ultimately it comes down to cost and selection.

August 22 2013 at 11:31 AM Report abuse rate up rate down Reply
pavknuth

I work on a computer all day. Somehow reading on a Nook, Kindle or other Tablet just doesn't seem appealing. I like real books and then I can pass them around when I'm done if I like.

August 22 2013 at 11:28 AM Report abuse +1 rate up rate down Reply
killkubota

Barnes and Noble lost me years ago. I mistakenly purchased a CD, and I realized my mistake when I opened it and listened just as I was leaving the store. I tried to return it, but nope, I had broken the plastic and so was now non returnable. So, I have never, ever darkened the threshold of a B&N since then. Mangement is their own worst enemy. I\'ve spent plenty on books since then, and none of it with them. Its an attitude. Once, they could afford to be shitty to customers. Now, its too late.

August 22 2013 at 10:52 AM Report abuse rate up rate down Reply
1 reply to killkubota's comment
whoisjohngalt.john

Please name the store that will take back a used CD for a full refund. I'll wait.
Barnes and Noble aren't shitty to their customers. You're just a shitty customer with an ax to grind.

August 22 2013 at 2:10 PM Report abuse +2 rate up rate down Reply
ednawarren

I visit the library. I own books and search for new ones All the time. I actually prefer a book to an e-reader...the book comes in handy for fending off talkers when I travel. E-readers get ignored.

August 22 2013 at 10:47 AM Report abuse rate up rate down Reply
portwashanne

It\'s a shame that practically everything has gone digital, and far and few between are those that visit their local library and check out a paper book. I\'m told that \"e-books\" are read line for line just like regular books but, it is the person\'s vocabulary and grammar that appears to be missing in today\'s younger generation: there is a difference in the meaning between \"there, their and they\'re\" as well as \"to, too and two\" and it would be comforting to see proper use of those words by those that post comments on these news articles.

August 22 2013 at 10:37 AM Report abuse rate up rate down Reply
Lillian

I use to buy new books but no more, I just can\'t afford them, $19.99 for a basic paperback.
Hello library.

August 22 2013 at 10:05 AM Report abuse rate up rate down Reply
1 reply to Lillian's comment
Shaun Hutchinson

Where are you paying $19.99 for a paperback? That's the price for hardcovers.

August 22 2013 at 12:12 PM Report abuse rate up rate down Reply