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).
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.