The Shatzkin Files

B&N results are disappointing, and one wonders if prior success with NOOK might deserve part of the blame

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Barnes & Noble announced some holiday sales results this morning and they were universally disappointing.

Overall sales are down. Same-store and online sales (the year-to-year comparables) are down 8.2%, while total sales are down 10.9% (because they have closed more stores than they’ve opened.)

NOOK sales were down 12.6% for the holiday period. Digital content sales were up 13.1%, but that’s alarming too. The company has sold a lot of devices since last Christmas (I don’t know, but one would expect the number of NOOK devices in the market has gone up by more than 13.1% in the past year) and last year they reported (according to Publishers Lunch) that NOOK business rose 43% during the holidays.

But what was most attention-grabbing (to me) was that the core sales decline was attributed to “lower bookstore traffic”.

Since the results were announced this morning, I had a conversation with a journalist who pointed out that the indies (anecdotally) seem to be reporting a very good Christmas. Why would the indies be up and B&N be down, this person wondered?

Thinking about that yields one piece of anecdata, one bit of conjecture (offered in yesterday’s forecast post), and one newly recalled (and somewhat frightening) insight.

The anecdata is that a Big Six CEO told me a couple of months ago that a very major book being published by that house (certainly one of the ten most anticipated releases of 2012) was not primarily promoted at B&N because they couldn’t get the bandwidth and cooperation on the B&N side to put something together. So the book was instead primarily launched through Walmart.

The conjecture in the last post was that the independents were more focused on selling printed books than B&N was. Indies are selling Kobo readers, but I’ll bet not one of them is devoting the prime sales space and portion of the paid staff to them that B&N does to the NOOKs. They’re focused on selling books, not devices, so they’re merchandising them better.

And the insight is that B&N has converted much of its store traffic to an online customer base because of their success at selling NOOKs. Those people may not be coming back, except virtually. These results may be the evidence of that.

B&N demonstrated with last week’s sale of NOOK equity to Pearson that what they have is of value to other companies. But that’s not particularly encouraging to the publishers and authors who are counting on them to sustain a bookselling presence.

B&N has a tough row to hoe building an international NOOK business without the store base they used to do it here. If the core US business declines faster than expected, that’s no help.

We always knew that the “old” Barnes & Noble was a fantastic US-based brick-and-mortar bookseller and that the “new” Barnes & Noble would be a global company based on devices and content. It always seemed tricky to get from one to the other and the challenge doesn’t appear to be getting any easier.

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  • Mike, you ask a very good question. The transition will be very hard. The key move was for B&N to separate the digital business from the stores but this is not enough as the separation has to be ‘real’.

    The issue I see is that Nook Digital will struggle to exist with its own identity and commercial strategy in a purely stand-alone way. The tie with its mothership could prove to hard to break. While the ability to leverage the high-street presence and brand should be very powerful, this will cause an inevitable ‘subjection’ effect.

    The other issue is that the stakes and the cost to play this game are very high. The cash raised from Microsoft and Pearson will help but the current incarnation of Nook Digital will have to change skin (and soul) pretty quickly if they want to have a real opportunity to fight Kindle and Kobo who both have enormous financial resources but more importantly laser-sharp strategies and no ‘parent’ to protect and help.

    • The separation “needs to be real” in the *long* run but I’m not sure the digital baby is really ready to be weaned from the mother ship.

      As for resources, unanswered questions include an understanding of what the real strategic interests of Microsoft and Pearson are and what they’re going to do to help NOOK be a successful business besides invest money.

  • One side note to consider is that most indies don’t discount. So if in store book sales are down at B&N and up at indies then customers are being motivated by factors other than price.

  • Mary Scriver

    I don’t know about other locations, but in Great Falls, Montana, B&N is very grudging and resentful about local books of all sorts (I mean, from well-made and worthy but self-published to someone’s aspirations exceeding their skills.) This is in contrast to Hastings, which takes on local projects. I had thought the attitude of B&N was due to the local manager, but she is gone now and the policy remains. The impression one gets is that they are teetering on the brink of closing and doesn’t want to pack a lot of books. The shelves don’t change much. All traces of Westerns are gone.

    They have a Starbucks on premises, but it is not “really” a Starbucks — just has their facade, I discovered when I was sent a gift card that would not be accepted by them. There is now a “real” Starbucks in the town.

    They remind me of my seminary, which was described by a classmate as believing that teaching in a seminary was a pleasant occupation, if one could just get rid of the students. B&N seems to seem customers should be handled with tongs, if not contempt.

    Prairie Mary
    Mary Scriver
    Valier, MT

    • Mary, I don’t know whether your local B&N is an outlier or whether things have changed since I was close to the chain’s activities, which is now a few years ago.

      My friend and former client at B&N, Joe Gonnella (perhaps still on this list, certainly still at B&N), used to describe B&N as a “Jeffersonian Democracy”. By that he meant that there was a lot of decentralized power (in the stores.) The stores were encouraged to do plenty of ordering on their own to give them a “local” flavor. There was a store in Nevada (Reno, I think…) that was widely admired in the chain because it had such a high percentage of its stock ordered by the store.

      So, whether the ethos has changed (could be) or whether they’re adjusting to an imminent closing (could be), the B&N you are experiencing is not the one I knew and not the one that was prevelant a very short time ago.

      Thanks very much for the report and the insight.


  • You write that “total sales are down 10.9% (because they have closed more stores than they’ve opened.)”

    I’ve tracked only 7 store closings in 2012, most of them at year end. So the sales decrease resulting from those closings won’t hit till 2013.

    What jumped out of the jumbled data in the B&N release was “core comparable store sales, which exclude sales of NOOK products, decreased 3.1% as compared to the prior year…” Comparables are usually the most telling feature.

    It’s worth comparing this to larger retail trends. The Wall Street Journal yesterday reported that “cautious U.S. consumers restrained their spending in December, making for a disappointing holiday season for retailers at what is usually their busiest time of the year” and an analyst is quoted stating “It was a very complicated month, with all sorts of events that threatened fragile expectations.”

    Last year for the third quarter ended January 28, 2012, the comparables excluding devices increased 4.2%. In 2011 it was 7.3%, although stated on a slightly different amalgam of data.

    Still, the company has frequently warned that “B&N Retail comparable store sales have declined in recent years due to lower consumer traffic …Even as the economy improves, the Company expects these trends to continue as consumer spending patterns shift toward internet retailers and digital content.”

    And so to conclude…it is a challenge to find definitive answers in all of this data beyond, as you note, that “the challenge doesn’t appear to be getting any easier.”

    • I’m glad that a more knowledgeable and sophisticated view of the data than I can offer comes to pretty much the same conclusion.

      Aside from store closings, why *would* sales overall decline faster than same-store sales?


  • yogadad

    Good post, Mike. I think your comment about Indies as the places that actually focused on the selling of books during the holiday sales season is right on. An anecdote: I gave my daughter two titles on my gift list. I wanted bound books, not e-books. She got me both of them and reported that neither one was available at our local B&N (Lansing, Michigan.) The titles were very mainstream, well-promoted & reviewed titles. One was “The Twelve” by Justin Cronin and the other was “The Unlikely Pilgrimage of Harold Fry” by Rachel Carr. Shocked I was that B&N was carrying “The Twelve.” Have they really sunk so low?

    About the Nook, I’m not sure that it’s a horse I’d bet on. Reports are that dedicated e-reader sales are slipping significantly now that tablet prices have gone below $200. And I wonder how many tablet owners will be the big e-book readers that the leading-edge Nook & Kindle buyers were. Will we soon see reports of e-book sales sliding in a significant way as tablet users play games, chat, & take pictures rather than read books? I wouldn’t be surprised.

    • Could be that B&N “carried” those books but was, at a particular moment, out of stock.

      Let’s remember that NOOK (and Kindle and Kobo) make tablets as well as ereaders.

      I agree with your last pessimistic point. There are a lot of distractions to take you away from reading if you’re not on a dedicated device. I know, because I read my books on my iPhone.


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  • Boston editor

    More anecdata, but the week before Christmas I tried to shop in the local B&N (a large store in prime retail location near Route 128 in Mass.) and got the strong sense that support for print book sales had pretty much been abandoned. The only customer service/information associate was locked in the Nook booth and was completely unable to assist in locating a book that had been reviewed in that Sunday’s New York Times Book Review, despite my attempts to lead him through the NY Times website to find it. (He could not even tell me if the store itself stocked the print edition of the Review, so I could go look it up myself.)

    The large bank of cash registers was staffed by a lone cashier, also underprepared and overwhelmed. The print book stock was shopworn and in disarray, and poorly displayed to boot. The cafe did seem to be staffed but was not exactly bustling. In all, a dispiriting retail experience that conveyed very clearly that customers who ventured past the Nook kiosk right inside the door should abandon all hope.

    I don’t see how a bookstore chain can survive if it doesn’t keep at least some focus on serving the print side of its business, even as it transitions to digital. Perhaps it is just this particular store, but the chain’s overall holiday results could reflect an ill-chosen decision not to invest in basic bookselling.

    • It is, indeed, anecdata. But it is sad and I fear not as unusual as the publishing business would want it to be.

      B&N has big overheads associated with the selling of books. If they don’t keep those sales as alive as they can for as long as they can, the cash drain keeping the doors open could siphon off resources desperately needed for NOOK.


    • My local B&N (Lake Grove, NY) has cut back its book inventory over the years to the point that the available floor space is grossly underutilized. It could keep its existing inventory while subleasing or otherwise ceasing to use half of its floor space.

      • Sad, sad, sad…particularly since I believe deals could be made to get books into the stores on consignment. I can’t understand why they’re not trying to make that happen. (Or maybe they are and I don’t know it…) There would certainly be *some* publishers who would rather have their books sitting on B&N store shelves than their own warehouse shelves.


    • Jen in CA

      Anecdata from Northern CA. I never have a problem finding someone to help me in our B&N. The sales staff are friendly and VERY helpful, particularly in the children’s section. There are always plenty of competent cashiers. If my local B&N closes I will be devastated. There’s a large used book store here also but it’s not easy to find what one is looking for amid the stacked arrangements of books all over the floor. And I really don’t want to live in a world where I have to shop for books at Wal Mart.

      • So glad to hear this!!! If any others out there have impressions about your local B&N — particularly positive ones — please feel free to add to the string.


      • Anecdota from Portland, OR. I visited two different B&N around Christmas (Clackamas Town Center & Lloyd Center branches), & while both looked like going concerns I was struck at how much their book inventory has shrunk: yes, they still had books for sale, but they were hard to find amongst all of the other stuff — notebooks, backpacks, board games — they had for sale. Neither appeared that busy.Compare this to Powell’s Books (the big store downtown), which was busy the 2 times I visited — although not Christmas season crazy — yet still quite clearly displaying its endless supply of books. (The second time I stopped by I purchased an academic monograph on Justinian’s Institutes.)

      • Thanks for checking in. Unfortunately, this tracks with the expectations I expressed in the post.


  • Robert Goldman

    One thing that no one in the business world seems to bother with is to ask what the customer experience is. With Barnes and Noble, I can tell you — it’s wretched. Instead of using their bricks and mortar stores as an asset competing against Amazon, they seem focused on ensuring that they will simply be an inferior Amazon. When I tried to buy a book and pick it up at the bookstore, they insisted that they had to charge me MORE for the book! So they were paying me to incur shipping costs. And worse! They were paying me TO STAY OUT OF THEIR STORE. Because goodness knows, they wouldn’t want me to see something else I might want to buy, and buy it.

    Their online ordering site is also strictly inferior to Amazon’s and usually has worse prices.

    Finally, with all due respect, you’d have to be an idiot to buy a Nook. As soon as B&N fails, as seems inevitable, your ebook library goes poof.

    • There is only sadness in all of this. B&N is all that stands between us and selecting our books from what Walmart and Target care to offer in most places in the country. (The most generous estimate I have heard for the number of really good independent stores is about 250. There are still something more than 500 B&Ns, I believe.)

      Not sure losing all your NOOK books needs to be much of an urgent concern. B&N is in no apparent immediate danger and the NOOK company, of course, is separate and has Microsoft and Pearson as fellow shareholders. Bad as all this is, demise is not imminent.


    • Thanks for reminding me I need to read all my Nook books.

  • kwn2196

    It seems to me one reason print bookstores are struggling is because the model is inherently incompatible with cost efficiency. The number of book titles approaches infinity (it seems) and yet shelf space is finite. Amazon and other online retailers solve this problem with huge warehouses. Has B&N ever installed an Espresso machine (print on demand, not the coffee!) or otherwise looked into a POD approach?

    • Well, you’re right about the problem. Picking the inventory when you’re offering a fraction of the total possibilities is a daunting challenge.
      But Expresso doesn’t solve it. First of all, they have access (rights) and capability to deliver (size and color are limitations) to a small fraction of the books you’d want. But, even if they did, it doesn’t work. The Espresso machine delivers a book in 5 minutes. You’d wait 5 minutes for a book, right? I would.

      But what if it WORKS. What if there are three people in front of you on line? 9? You want to wait 45 minutes for me to print your book?

      Not a solution to this problem, in my opinion.


  • Sad for brick and mortar stores in general, but in B&M’s case there seem to be a few factors that the big corporation got wrong: You need to be able to sell to readers, not mall and coffee shop rats. They stocked their shelves with little else but For Dummies and Complete Idiots Guides, They couldn’t be bothered to hire or keep on former booksellers from other stores, instead opting for “up sellers” who may have asked people twice if they wanted a store credit card after the customer said “no,” but who usually didn’t know too much about books.

    You can blame this on the internet and ebooks all you want, but it’s as if B&N wanted to go under. Larger indies will likely step into the breach.

    • Sorry, but this just doesn’t feel right to me. They demonstrably stock a lot more than Dummies and Idiots Guides. And “mall and coffee shop rats” dig also doesn’t fit. Very few B&N stores are in malls; those were the B. Daltons they’ve shut down. There are a lot of unique local experiences, and I don’t know what yours have been, but these generalizations don’t ring true.

      And it would be nice if the “larger indies” thrived, particularly if B&N struggles, but that remains to be seen.


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