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Barnes and Noble – Xmas 2012

12.30.2012, Uncategorized, by .

I have not been very upbeat regarding B&N’s position in the book industry. I have felt that they were too tied to tradition and not enough to the future. I also felt that they have lost focus on the stores and reality — and too much on the lack of planning for the Nook. Although these two seem at odds, they are actually very much connected.

I wish B&N well. I want them to succeed. But I feel the storm clouds are coming and not going away.

I had though this Fall would have been a stellar quarter for B&N and that their stock would rise. I was wrong. Looks like this quarter has been a disappointment.

eBooks and Digital:

B&N jumped out last year and grabbed 25% of the eBook market. I predict they have peaked. That their market share will start to decline. Now competitors will enter and take it from B&N. Apple, being sleepy in eBooks continues to sell more and more iPads. There will be some residual benefits as some people will just use the IBookstore to buy eBooks. Amazon will continue to solidify their lead. They continue to innovate.

So, I see three places where B&N Nook will lose share. I don’t see how MSFT will help.

I was in a Microsoft store last week. It was empty. The employees didn’t know anything about the Nook. One even suggested the Kindle. MSFT also has their troubles with Surface tablet selling slow and Windows 8. The Nook investment of $600-million over 5 years sounds like a lot. But it seems MSFT has other problems to deal with.

B&N sold another 5% to Pearson. Maybe this will help. But they continue to sell off pieces of the company. Sounds like a fire sale and not as much an investment.

Physical Books and B&N superstores:

B&N is the only national book chain in the nation, They operate over 600 superstores (Plus n additional 600 college bookstores). These stores have been reporting disappointing sales figures. As the leases come up, they generally close the store. Regardless of the success of the store, operating a 30,000 square foot bookstore is no longer a business model that works.

B&N will not be able to increase the sales of physical books. It is a tide that is not turning back. Sure they can try to get more share from others, but who is left? B&N has used the stores as outposts for the Nook. That is how they grabbed so much share. But now the newness is gone and this advantage is past. So what was once a major asset (having all these locations) is quickly becoming a liability. It also appears upper management is not interested in running these stores.

B&N has diversified their offerings. Many more games, cards, toys,etc are available. Although I applaud this move, I am just not sure it is enough. I feel they will need to push even further away from the book/non-book mix.

Walked around a B&N store yesterday. As I walked through the aisles and looked at the bargain tables, I was still struck by the enormous amount of inventory. There were piles of books everywhere. It is so inefficient. It doesn’t seem to be something that will work long term, Retail has changed. The biggest inventory does not guarantee the best selection. The Internet will always be that.

I want B&N to survive. There are some wonderful professionals working there.

But I fear 2013 is going to be a very difficult year for B&N stores and the B&N Nook.

We will see a lot of changes in 2013 and many traditional players will push to the end.

PS — Best Buy, Sears and Radio Shack will all be gone by the end of the year. I think B&N will survive… but for how long?

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