Barnes & Noble's announcement on Thursday that they were spinning off their college bookstore division into its own company might be a good business move, but it's not without its problems.
B&N currently operates 700 plus college bookstores under contract, and they plan to add more stores by convincing colleges and universities to outsource a store's operation to B&N (or B&N Education, as the new company will be known after it is spun off).
That's all well and good, but the fact is B&N Edu is investing in a shrinking market.
It's not just that B&N is facing a new threat from Amazon, which already has deals with 3 US universities, but also that the college bookstore industry is in a state of flux right now. Many college bookstores are seeing declining revenues as students move to buying more stuff online, and this is inspiring the bookstores to look for new solutions.
UC Davis Stores, which has an affiliate deal with Amazon, saw its revenues drop from $22.9 million in fiscal year 2010-11 to $19.6 million in 2013-14. UMass Amherst, where Amazon now has a deal to operate a virtual textbook annex, saw its textbook sales decrease by 30% from 2009 to 2013, with used textbook sales decreasing by 62%.
What's more, the reports of declining sales are borne out by B&N's own annual reports. The retailer reported that revenues for its college bookstore division declined in two of the last 3 fiscal years (2012, 2013, 2014). This, while B&N was signing new contracts to operate additional stores.
And that's not all. I also have an RFP (request for proposal) in front of me which shows that bookstore revenues are declining because students are buying less from the bookstore, and not due to other possible causes (decreasing enrollment, for example).
The University of Wisconsin Milwaukee is in the process of launching a "Virtual Course Materials Store". The bid process is ongoing, which means there's currently little public info on who is bidding and how the virtual store will operate, but the RFP does lay out the bookstores financial state.
That bookstore generated $7.6 million in sales in FY2014, which was down about 15% from FY2010. Enrollment declined 7.2% in that time, which accounts for some of the loss, but sales of textbook and course materials declined even faster. Textbook sales dropped by 23% between FY2010 and FY2014. The RFP also tells us that the bookstore's average sales per full time student was $324 in FY2014, down $29 (8.2%) since FY2010.
In short, folks, B&N may say that with 53% of college bookstores still being run by schools they have a great opportunity for expansion, but what they are leaving out is that B&N is looking to aggressively expand into a declining market.
Heck, this is a market which even the bookstores are looking to get out of.
The real reason Amazon has those deals with the college bookstores is that the bookstores themselves went out looking for potential online partners. UMass Amherst, for example, specifically went looking for a company to operate a virtual textbook annex (Amherst's physical bookstore is run by Follette). Their bid process started in early 2014, and was concluded a year later.
Do you know my takeaway from this?
I'm getting the impression that Barnes & Noble is running the wrong type of college bookstore business
Also, that now would be a good time to get out of the business of running a physical college bookstore and concentrate on running a virtual college bookstore - something Amazon excels at.
In fact, I think that could be the very reason why B&N is spinning off the college bookstores division; they want to make the success or failure of that division someone else's responsibility.
What do you think?
image by keone