(On July 7, 2023, I received the following:
JOINT STATEMENT BY DEMOS PARNEROS AND BARNES & NOBLE, INC.
Former CEO Demos Parneros and Barnes & Noble have amicably settled all claims
regarding his termination in 2018. This matter has been resolved with no judicial determination
of wrongdoing. The terms of the settlement are confidential.
Dated: October 14, 2020
The substance of this article still has great value, but, in the interests of complete accuracy, I add this forenote.)
When Barnes & Noble interrupted Holiday week day-dreaming to announce that recently elevated CEO Demos Parneros had been abruptly dismissed for a contract violation that also eliminated his severance, it not only ignited a minor industry of speculation about “what happened?” but it also called attention to the commercial situation at Barnes & Noble.
And that, in a couple of words, is “not good”.
There are two inexorable and unrelenting shifts taking place in the book businiess, and while neither of them are B&N’s fault, it is also true that neither work in B&N’s favor. One is that more and more book purchasing is taking place online and less and less in physical stores. And the other is that more and more books are being published and sold, or distributed, from outside the commercial realm. That is, the entities publishing books to make money on them are seeing their share being sliced away by countless cuts from independent authors and various corporate and cause organizations that want to put books into people’s hands and devices to increase their fame or promote a message, not primarily to make a profit.
Since Barnes & Noble’s great expertise centers around promoting and selling books to consumers in physical stores working with publisher trading partners who are trying to make a profit, that means that their part of the book market is just getting smaller in ways that could only be addressed by selling more online and being a more effective conduit for non-commercial distribution. They’ve failed miserably for two decades at the former and there isn’t big money in the latter.
But commercial book publishing — especially the Big Five with their high-volume flow of commercial new titles and deep backlists but also a diminishing but still long tail of university presses, smaller general trade houses, and specialty publishers — really needs B&N. They’re needed for the hundreds of bookstores they maintain and because they present the one significant alternative to the retailing giant that is growing on the back of the larger trends: Amazon.
Just before the Parneros announcement, I had lunch with an industry expert who expressed mild surprise that “the publishers haven’t just bought B&N and fixed it”. This same seer thinks Amazon may be teetering on the edge of vulnerability because they have taken the tactic of steering customers to their own product too far for their own health in the book business.
And on the day that Parneros’s firing was announced, I had met with a publishing veteran from just-smaller-than-Big-5 publishing. He does commercial books, but the ones that don’t usually command six-figure advances. He finds it hard to imagine how publishers will navigate a world without B&N in it and is quite candid about how difficult negotiations with the already-nearly-hegemonic Amazon already are with the B&N counterweight still alive and active.
To be clear, there is no suggestion in the Parneros firing or in any recent financials that B&N’s demise is imminent. But the store sales shrinkage is evident and shows no signs of abating. And there is nothing in the performance of their dot com business that suggests they’ve cracked any codes after nearly two decades of pretty steady loss of share of the online book business to Amazon.
The suggestion that publishers buy and fix B&N surprised me a bit. There was talk about publishers setting up their own online book sales competitor to Amazon 20 years ago and it is evident now why that wouldn’t have worked. Amazon’s significant competitive advantage came from the fact that making money from the book business wasn’t their primary objective: building a customer base on the back of the book business to create a bigger marketplace and ultimately a cloud computing behemoth was where they were going. No publisher or consortium of publishers was going to adopt a vision like that.
But the suggestion does have logical elements. Publishers have the most to gain from a prosperous Barnes & Noble and the most to lose if it goes away. Publishers are, along with store lease-holders, B&N’s most significant trading partners and creditors. And Amazon competes as a publisher, Barnes & Noble still owns a publisher, and major publishers owned the Brentano’s and Doubleday bookstore chains in decades past, so publishers and booksellers have owned each other over the years.
I hadn’t seriously thought about the idea but I did when it was suggested by a worthy observer. But still, from here, the challenges of creating a partnership that could actually operate and synergize on publisher strengths such as author connections, in-house end-customer lists and communication, and all that a publisher knows about the timing of promotional opportunities around any particular book title, look insuperable.
Even without new owners, Barnes & Noble doesn’t lack for suggestions about how to improve their business. A piece from CNN earlier this year enumerated a number of ideas:
1. Downsize and curate
2. Ditch Starbucks
3. Build a community
4. Be like Indigo and sell “home goods”
5. Kill Nook
The post-Parneros chatter I’ve seen leans heavily on the “success” of the Waterstone’s UK turnaround under bookseller James Daunt; many on listservs I frequent think B&N could fix their problems if they just hired a smart indie bookseller to head things up. With all respect to what Daunt has accomplished, the challenges of running a massive operation of hundreds of stores are quite different from what it takes to run one store or three. The skill sets just don’t overlap.
In addition to those pesky inexorable trends, there’s one more big problem looming: Amazon is just beginning to move into the brick-and-mortar space. There are only a handful of Amazon bookstores now, but you can bet that they would view any “solution” that might save B&N as just another suggestion for what they might do themselves to win in the physical world.
And if you take the number one suggestion from CNN — the most obvious and most important one — you see that the Amazon competition will be a real problem. Yes, it is a correct analysis that the super-sized bookstore is a dinosaur; massive in-store selection with many titles that hardly ever sell is a relic of the pre-Internet age. And the “curation” that makes a small selection work effectively is more easily delivered by Amazon’s massive supply chain and highly localized market knowledge, not to mention their ability to “promote” by email the existence of a store or anything in it to a large percentage of purchasers in any locale. Similarly, Amazon will find it easy to sell “home goods”, or whatever else is the right thing for any particular location because they probably already do. And while B&N is being urged to ditch the money-demanding Nook ebook line, Amazon would be using Kindle as a springboard to the extent that is relevant at all to a store-shopping audience.
And I’m going to admit to a bit of a chuckle when I read “build a community”. A community? One community? Does that mean one community for people who read Civil War history and romance fiction? No, that’s a silly idea. A bookstore actually needs to foster many communities. You can be pretty confident that Amazon knows that.
The key suggestion here duplicates one I made as a consultant to Barnes & Noble almost two decades ago: don’t perfect just the massive store, but learn how to make smaller ones work. Put the top 50 books on sale in more places; don’t try to create hundreds of repositories for tens of thousands of books that have tiny audiences. That’s what Amazon looks like they’ll be doing. But it is precisely not what B&N built expertise to deliver.
It is ironic that at the time I made the suggestion in the early 2000s, B&N was still in the process of winning its superstore competition with Borders based on its superior supply chain. B&N could, and did, put replacement copies on the shelf for steadily-moving backlist pretty much instantly when the single copy they carried of so many of those books sold. That was efficient and profitable. Borders didn’t have the supply chain to match it, so they had less profitable stock turn and were out of the steady sellers more of the time. Of course, that was hardly the sole reason B&N survived a decade ago when Borders went out, but it was certainly a contributor.
But now that supply chain is getting increasingly expensive. Every time you close a store or shrink the book footprint in a store, you increase the unit cost of each replacement copy the supply chain delivers because a pretty fixed cost is covered by less volume. In the intervening time, Ingram has built an equivalent capability, so the independent bookstores that have sprung up to replace Borders are benefiting from the same ability a B&N store has to keep stock moving without the fixed expense.
So, suggestion number one from me for improving the profitability of B&N would be: ditch that supply chain and negotiate a deal to lean on Ingram’s instead.
Also sensible is CNN’s notion that Barnes & Noble should ditch its proprietary Nook ebook platform. When it was first launched 10 years ago, B&N found a ready market for both ebook reader hardware and the content itself from their store shoppers who weren’t really online shoppers. Of course, that was very likely the foundation of the chain’s business. But, in time, that advantage ran its course. There are fewer store shoppers who don’t shop online than there were ten years ago. And the explosive growth in the ebook market has abated. So B&N is maintaining a brand, including dedicated hardware and software, on a flat or declining revenue base. And hardware and digital content are not where B&N has any branding or expertise advantage.
It would certainly seem like a collaboration with Kobo or Google would be a more profitable and less demanding way for B&N to maintain its relationship with ebook customers than trying to maintain the Nook brand.
The one part of a supply chain that B&N needs to automate and own is a system to employ data to make store stocking decisions. They pioneered this in bygone days with so many titles on automated reorders, or what they called model stock. There is no way to run small stores profitably without new systems to reduce the need to make human stocking decision. And there is no way to compete against what Amazon is likely to do over the next five years without many more small stores than B&N could open if they have to locate, lease, and staff every one.
So the idea for survival from here is to build out the brand by putting Barnes & Noble book departments inside other people’s stores. They can do this with Ingram’s supply chain, if they automate the buying decisions for the “last mile”. The more of this they do, the more data they’ll have about what is selling and where to improve the automated stocking decisions.
Of course, the number one thing to do is to make BN.com as customer-friendly and robust for book and author discovery and discussion as Amazon is. If they had done that 10 or 20 years ago, they wouldn’t be in the pickle they’re in right now. Either this is a stark demonstration of how brilliant Amazon is at tech or it just reveals a massive fail by B&N. Either way, they are now about to compete with Amazon in the physical space as well. Everybody in the publishing world wishes them the very best of luck, but the good wishes generally exceed the expectations.
It would be disingenuous of me not to reveal explicitly that I have long enjoyed a very good relationship with Ingram and am working on an exciting project with them at the moment that has nothing at all to do with the suggestions in this piece. I only hasten to add that my role with them is both modest and quite tangential to their extraordinary capabilities, which are managed very well with absolutely no help from me.