The Death Spiral has Officially Begun: B&N Announces Plans to Close 20 Stores a Year

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The Future
Ever since Barnes & Noble announced lackluster holiday sales earlier this month I have been waiting fro the other shoe to drop. And now it has.

The WSJ reported this morning that B&N already has a long term plan in place. They're ready to cope with their decline:

"In 10 years we'll have 450 to 500 stores," said Mitchell Klipper, chief executive of Barnes & Noble's retail group, in an interview last week. The company operated 689 retail stores as of Jan. 23, along with a separate chain of 674 college stores.

Mr. Klipper said his forecast assumes that the company will close about 20 stores a year over the period.

B&N has been opening an average of 30 stores a year (and closing 15) until 2009. Since 2009 B&N has been closing more retail stores than they have been opening, and in the past year they've only opened 2 stores.

B&N College is also performing poorly.  This B&N subsidiary operates college bookstores under contract to universities, community colleges, etc. In spite of the fact that they've signed a number of new contracts over the past few year revenues have still declined as often than they grew. At best B&N College is holding steady.

2009 was the year everything changed for B&N. That was the year they bet the future of the company on digital. They bought Fictionwise, reacquired B&N College, and launched the Nook.  Given that 3 and a half years later Nook revenues still account for less than 10% of overall revenue I would say that this was a bust.

And from what Mr Klipper says in the article, it's pretty clear that B&N thinks the same. There are almost no mentions of the Nook platform in the article and none in the quotes. It's all optimistic statements like:

Even with 450 to 500 stores, "it's a good business model," says Mr. Klipper. "You have to adjust your overhead, and get smart with smart systems. Is it what it used to be when you were opening 80 stores a year and dropping stores everywhere? Probably not. It's different. But every business evolves."

I wonder if B&N saw digital as a way to prop up the brick-and-mortar stores? That's certainly what it looked like in the early years of the Nook Store. In 2010 and early 2011 B&N ran "More in Store" promotions where you could get free ebooks if you visited a B&N retail location.  That limited them to only attracting customers who live within a reasonable distance of their existing stores and ignored the many potential customers who don't (basically everyone in the US with internet access and a credit card).

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The Future
But that's not B&N's only misstep. They still have not integrated their online and brick-and-mortar operations, they're still having issues with online customer disservice, and their digital sales are still hobbled by questionable business decisions. The Nook App Store is a "curated" app store with only around 8000 titles, thus limiting the value to customers, and B&N still doesn't sell mp3 music.

Then again, B&N's limited success in the ebook market (going by their lackluster revenue) isn't entirely their own fault; they have in fact been a couple steps behind Amazon ever since shortly after the Nook Store opened in July 2009.

At that time B&N looked like a serious competitor in the US market, so Amazon responded by taking the Kindle international in October of that year. That gave Amazon hardware and ebook sales that B&N simply could not match in 2009. In fact, B&N is still struggling to expand internationally.

If it sounds like I am writing B&N's epitaph, you're not wrong. I don't see a way forward for B&N. But you cannot hold that against me because frankly the article above doesn't show that they have a plan either. Shrinking isn't a long term solution but that's about the only thing discussed.

images by karen horton, Ed Yourdon

45 thoughts on “The Death Spiral has Officially Begun: B&N Announces Plans to Close 20 Stores a Year

  1. I couldn’t help but laugh at his optimism. In 10 years, Barnes & Noble will be lucky if people still remember to mention them in retrospectives about publishing’s good old days. Even then, they’ll probably be a footnote under big box stores that rose to prominence, doing a ton of damage to the distribution chain and leaving publishing even more vulnerable to the digital disruption. They are a walking corpse. No way they still exist in 5 years, let alone 10. I wouldn’t be surprised if they were gone before the end of 2014, honestly.

  2. >>>There are almost no mentions of the Nook platform in the article

    Probably because they must now think of it as a separate company down the road, Nook Media, so they’re starting now. This is all about the B&M — and who really expected them to last? Just those people who apparently love to *snort* their damn paper books.

    1. It’s actually more likely that it’s a result of the article being:
      a) An interview with the CEO of the retail division
      b) about the retail division

      So naturally it’s about retail, not the NOOK side of things. Strange, I know, but even Amazon has interviews where they don’t continually dance about how awesome Kindle sales are.

  3. I know consumers would balk at this so it ultimately would probably drive away business and not work, but I have thought that as a last ditch effort, brick and mortar stores could operate with an admission fee to help support themselves. It costs a small amount to get in (a few dollars per person or maybe a group fee), but you get your receipt with a bar code that can be used like a gift card. (People who buy a yearly membership card could get in free). So you can browse the store and use your admission fee toward a purchase or a coffee/snack, so it doesn’t cost you anything as long as you buy something worth the fee. Or you can use it toward an online purchase if you choose to go that way. But if you are just browsing and then intend to buy elsewhere, you pay a browsing fee for the use of their building and inventory. Thus, brick and mortar stores can make some money back just for putting their products on display.

    I tend to be an online shopper, but there are some things you just want to see in person. Children’s books, tech books, devices – it would be a shame to lose the ability to get a hands on before purchasing. Of course, if I go look at something in the store, I tend to buy there – unless there is a huge price discrepancy. But I know a lot of people who browse in stores and purchase online somewhere else. They don’t support the stores with there business, but they will likely miss them when they are gone.

    1. I like the idea of paid membership to enter a bookstore, assuming there are lots of comfy chairs to sip my latte, with free wifi of course.

    2. I’m sorry, no way this would work. I would be completely ticked if I had to pay to walk into their store, regardless of getting a credit. I don’t always buy something every time I walk into a store. A fee like this, if I wasn’t already an Amazon customer, sure would drive me to them in a hurry.

      Barnes and Noble has enough unfriendly, customer policies as it is. Something like this would just put the final nail in the coffin for the few customers that do visit their B&M stores.

      1. Most people don’t go in to buy books. They go in to whittle away time. It is a form of entertainment, to lounge and look at books and magazines. I think someone will eventually experiment with this approach, when they can’t make money selling books, although it may be an independent bookstore that does it, rather than Barnes and Noble.

  4. Every time I read this “blog” I can’t help but wonder.

    If this page had been around in 1996-97 how loudly would Nate have screamed that Apple had no way out?

      1. I dunno, I get the funny feeling you would have written about how Apple wasting the last of their precious capital acquiring NeXT was just them grasping at straws and wishing back to a simpler time.

        1. That deal involved bringing back one of Apple’s founders who then managed to pull off the impossible. Can you think of someone capable of doing the same for B&N? The current management can’t cut it; they’re the equivalent of the pre-Steve Apple.

          1. Steve ran NeXT into the ground. Literally. Their OS was certainly advanced for the time, but their hardware was a complete flop – over the 8 years it’s estimated they sold a whopping 50k computers total. NeXT was, for all intents and purposes, great on paper but terrible in delivery.

            So yes, I’m pretty sure you would have been saying the same stuff you say about BN now.

          2. And in 1998 (right after Steve came back) I would have been completely correct.

            And you didn’t answer my question. Who do you expect to save B&N? If you cannot name someone then you cannot claim that someone will swoop in at the 11th hour and save B&N.

            Publishers will probably continue to prop up the retailer for some time, but that will likely only delay the inevitable. Who is the rescuer? I’m all ears.

  5. Grim perspective but probably accurate. The real question is why B&N’s holiday sales were sucky and the indies had their best quarter in many years. Also interesting to note is that most of those indie book sales were not discounted as are most B&N book sales.

      1. I don’t know. The sort of co-op placement that B&N has benefited from may have been cut by publishers but indies can’t participate in same sort of placement schemes due to lack of volume. The difference in foot traffic was the story I read.

        1. And the anecdotal reason for the drop in foot traffic has been reported as being that a small portion of the customers don’t like the de-emphasis on books and took their business elsewhere.
          The drop was only ten percent so it didn’t take too many book sniffers in a snoot to push them over the cliff.

  6. B&N’s problems start with their senior management and the policies they set. Since their policies and strategy is the best they could come up with one could hardly expect them to come up with something better; if they were capable of it they woud’ve done it before this.

    Personally, I think B&N *can* survive and even prosper into the into the next decade but they need new management and a new strategy. And they need to ditch 90% of those big stores and replace them with twice as many waaaaay smaller ones. They can start by dusting off the B. Dalton format. (3000-5000 square feet.)

    It is ironic that B&N divested itself of Gamestop just before the disruption because that Gamestop business model (small stores in every suburban mall) is exactly what they need to do to survive: instead of expecting consumers to come to their “temple”, they need to take the books as close as possible to the consumers.
    It works for Gamestop and for Payless and even for Radio Shack.

    All they need to do integrate online with small storefront and regional depots; carry the bestsellers and genre favorites on site, everything else at the depts for same day or overnight pickup. They need to think local and go where the customers are.

    But the current team doesn’t think that way.
    Either they get a new team or the ship goes down with the captain.

    1. Since Nate isn’t a journalist he doesn’t get the press memos real news sites do, but BN actually sent out a clarification memo this morning about doing this very thing (they call them “experimental store models”).

        1. Cute.

          I see this interview as nothing more than a rather brilliant bargaining tactic. BN has more than 400 leases coming up for negotiation in the next 3 years. BN wants to get good leases at good prices in good locations. So what do you do?

          You let out a little interview saying that the company is looking at downsizing it’s retail portfolio.

          BN is still a good company to have in a building. They are excellent anchor stores in malls, draw customers into locations because of their dominance of the market, and are (as the interview states) profitable. But now you have an extra chip in BN’s bag – the fact that the company is “looking to downsize”. All of a sudden BN has the extra push in negotiations with landlords to say “well we’d love to stay here but see – we have this plan to trim some fat and your location just isn’t profitable enough”. It gives them a little extra leverage at the bargaining table for the thing most important to the company. And it gives them an out when they do shutter the truly underperforming stores.

          Or, as my friend said, it could be a ploy to drop the share price further to make taking the company private cheaper.

          And please point out to me where you were “right”. BN is still profitable and has almost no long-term debt along with huge swaths of marketshare in a very profitable sector – they’re actually in remarkably good shape given the disruption that the book industry has gone through over the last few years.

          1. “Or, as my friend said, it could be a ploy to drop the share price further to make taking the company private cheaper.”

            If their goal was to appear as pathetic as possible just to FOOL US! that they’re on a one way path to insolvency, then HOT DAMN, son. Mission accomplished!

          2. Yup.
            They’re doing a great job of devaluing the very stock they are selling to fund day to day operations.
            Kinda like mortgaging a house to buy groceries. If you’re a senior citizen its called a reverse mortgage but if you’re a business “death spiral” is not inaccurate.

            And telling people you see a decade of store closures ahead isn’t exactly the best way to get folks to buy into your company’s digital ecosystem.

          3. Huh? BN hasn’t had a public stock offering in years.

            Has anyone who reads this blog ever taken a business course? Ever?

          4. And what did Microsoft and Pearson buy? Chunks of Nook Media, the primary asset left to B&N. Once you factor in the valuation of Nook Media, the rest of B&N has negative paper value.
            And today’s report explains why; a third of the stores need to go.
            Oooohh yeah! Folks are going to be stampeding to buy into that business.
            B&N is looking like a house of cards…

    2. For B&N to attempt all you are putting forward here they would need money, lots of it. Nobody is going to invest in a dying business, they still have debt, and the profits from their B&M operations have all been swallowed by a financial black hole called Nook.

      It also the case that neither B&N nor the late and unlamented Borders could make the smaller format work. No surprise as the model as described here sounds mightily unprofitable – stocking only bestsellers (thin margins, available everywhere else), genres which is most quickly moving to ebooks, rent for stores and depots as well…

      Truth is the great majority of bookstores are going to disappear, and disappear for good. The only question is how long it is going to take. B&N can see the trends in their foot traffic and financial statements, no matter how profitable the stores may be now. As it is their 10 year ‘plan’ seems absurdly optimistic to me.

  7. You say that Barnes and Noble has been “a couple steps behind” Amazon in the ebook market since 2009. Sure, Barnes and Noble has had some missteps, but give them credit for their successes too. They have been fighting hard. They put out the first color e-reader/low-cost tablet, the Nook Color, nearly a year before Amazon released the Kindle Fire. Ditto for putting out a touch screen e-ink reader before Amazon and also for putting out a lighted e-ink reader before Amazon. On hardware, it seems that they have actually been a step ahead. They’ve competed less well on content and apps, but I think their hardware has been consistently impressive.

    1. The year that B&N released the Nook Touch Kobo also released the Kobo Touch – within weeks, actually. And then 6 months later Amazon topped them both by releasing 3 new ereaders focused on specific types of reading. That is an example of Amazon being a step ahead.

      And the Nook Color wasn’t ground breaking. If anything B&N’s partner Pandigital released the first Android based enhanced ereader. That first Novel sucked but it was still the first.

      If anything the Nook Color and follow on devices are arguably a long set of missteps on the part of B&N. By the time B&N released the Nook Color everyone else had given up on the enhanced ereader idea and instead went for tablets. B&N stuck with it and as a result their hardware is less capable and has less value.

  8. B&N isn’t a dying business but rather it is a dead business. They have made so many mistakes whether it is by selecting poor CEOs to their poor business model strategy. They do not nor will have the money or deep pockets to truly compete with Amazon and the Kindle. That is just a fact. Accept it. B&N should have closed many of their brick and mortars a long time ago and perhaps they may have had a small chance but highly unlikely given the poor management at the top. Jeff Bezos who runs Amazon is another version of Steve Jobs and he has taken Amazon to the world-wide dominance it now commands. If you can’t play with the big boys you get out or you get killed. B&N will be completely gone within two years if not sooner. If they have another holiday season like the last they’ll be gone by 2014. They are following the exact same path in every way that Borders did. Unfortunately many of their employees are going to be without jobs. At this point I would recommend not buying a Nook as who knows what will happen with that. Let’s all face it. Amazon won and B&N lost. The light at the end of tunnel is that you will see smaller indies opening up again from the ashes of the dead B&N.

  9. Take a step back and look at this from a consumer view. B&N is horrible.

    Their customer service is incredibly poor compared to Amazon.

    They DESTROYED Fictionwise as soon as the ownership transfered to B&N and completely betrayed every FW customer, thereby loosing the large base of ereaders that bought lots of media.

    They have a separate DRM scheme for e-books which makes NO sense.

    They have alienated foreign customers for years.

    The company is dead.

  10. This is just too bad. I still like to go look at the Sci-Fi section every month or so. Most often, I buy 3-6 paperbacks each trip.
    I also buy Baen Ebooks without DRM in HTML format and from some authors directly in RTF or PDF. I read this stuff on my netbook or my phone.
    I won’t buy ANY books with DRM, (I’ve been orphaned before), and I’ve only bought 2 books in Nook EPUB format… Altho, it is starting to look like EPUB is becoming an open standard. If so, I’ll be buying more in that format.
    I WON’T buy stuff locked to particular hardware.

    I am going to miss being able to go there, browse thru the stacks, read the first 20-30 pages and look at the covers to help me decide.

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