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B&N is Predicting Poor Holiday Sales

barnes_noblelogoI’ve just been sent a copy of an SEC filing that Barnes & Noble submitted today, and it contains a couple interesting nuggets of info which might explain why Pearson bought a chunk of Nook Media.

Here’s what B&N had to say about their holiday sales:

The Company expects to announce its holiday sales results on January 3, 2013. Based on preliminary sales results to date in the holiday period and sales trends, the Company expects its holiday sales results will be below expectations and that the NOOK business will not meet the Company’s prior projection for fiscal year 2013.

For the longest time now I’ve been concerned about how well B&N is doing, and now it looks like I was right. I might not have had any good evidence to show that there was a problem, but my gut instinct told me B&N was not having much success with the Nook.

In fact, one feeling I had had for the past several weeks was that B&N was seeing poor sales this holiday season. I do so wish that I had had courage to actually express that impression.

I think we can clearly see now why B&N has been trying to foist the Nook division onto someone else. Unfortunately, B&N couldn’t find a sucker dumb enough to buy the entire Nook division, so instead they’ve been picking up piecemeal investments from Microsoft and (as of today) Pearson.

These new sales projections change the entire tone of the investment. Now it is no longer a strategic investment; instead Pearson is propping up one of Amazon’s competitors.

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fjtorres December 28, 2012 um 11:27 am

Spin-off ahoy!
They *have* to spinoff Nook Media once and for all; this piecemeal mortgaging helps nobody.
Now to wait and see just how bad the season went for them.
(And if they’re still up to their gills in STRs.)

fjtorres December 28, 2012 um 11:29 am

BTW, given the hints that Amazon wasn’t exactly enjoying gangbuster Kindle holiday sales, this announcement was pretty much a given, no?

willem December 28, 2012 um 11:32 am

Chances of somebody buying a 51% stake in Nook Media just went up a tad.

Given the economies of scale involved – which B&N does not have, and never will – pulling an Indigo maneuver increasingly looks like their best shot for ridding themselves of this albatross.

Any takers?

Nate Hoffelder December 28, 2012 um 11:37 am

An Indigo maneuver would have been a great idea (and probably what B&N wanted when they announced the spinoff plans earlier this year), but now it could be too late. I’m not sure I can think of another company on the scale of Amazon or Rakuten who would be interested.

It’s a pity Rakuten bought Kobo, and not Nook. But given that Kobo was already international at the time it was sold, it probably looked like the better option.

willem December 28, 2012 um 11:47 am

You might be right that it could be too late now.

As it stands I think the likeliest of the admittedly long shot scenarios is a large b&m retailer trying to get into digital. Walmart is my candidate – if they want to pad their digital online offerings then something other than Vudu will have to be looked at. There were rumours of them sniffing around B&N last year…

Microsoft seems absurd, then again Ballmer is an absurd kind of guy, so who knows?

Can’t really think of anyone else.

fjtorres December 28, 2012 um 12:00 pm

Microsoft is far from absurd.
They already sell digital media in both video and music. They have a music subscription service. They sell video games. They sell tablet and phone apps. Every category iTunes covers, they cover… except ebooks.
That is why they invested in Nook Media to start with.
And they are one of only two tech companies that won’t even blink at dropping a cool billion to control Nook. (Google being the other.) And MS is better positioned to take advantage of Nook’s unused resources (especially in education) than Google.

fjtorres December 28, 2012 um 11:54 am

There are a couple possibilities but the pre-requisite is that 51% of the company has to be available. As long as Riggio insists on keeping control and tying Nook to B&N none of the likely candidates will touch it.
Offer up actual control and the takers will line up; US$1 billion isn’t a bad price for control of 20% of the US ebook market. (Rakuten only bought 6% or so).
But the likely buyers will need *control*.

Candidates? Microsoft. Sony (They’re not so hard up they can’t scare up that much). Rakuten. (Think on it.) WalMart (ditto). Target. BestBuy. A euro retailer. (FNAC?)
Or, most likely, a consortium of the three surviving BPHs; they wouldn’t lift a finger for Borders but if Nook tanks…

Nate Hoffelder December 28, 2012 um 12:14 pm

FNAC is a kobo partner, so they would be low on my list. But when it comes to European retail conglomerates, the ones which have the funds would be Tesco, BAS Group, and others.

I don’t know that any have the interest, though Tesco did just by an ebook distributor.

I doubt Best Buy has the funds to buy Nook Media, as much as they might want to.

I would giggle if Sony bought a controlling interest. It would be a case of the blind leading the visually impaired. And I seriously doubt that their corporate structure is capable of making that kind of that kind of maneuver – not anymore.

Walmart or Target are serious options, yes. But why would Rakuten be interested?

fjtorres December 28, 2012 um 12:49 pm

1- Kobo isn’t doing the job for them. Not in the US.
2- To make sure somebody else doesn’t get Nook.

Best Buy:
1- The founder is looking to take them private.
2- They are looking to expand in the mobile arena. They’ll need content to distinguish themselves. Especially if (when?) the Kindlephone arrives.

Their choices are to get out of ebooks *and* Tablets or double-down. Nook would be cheaper. They are *also* looking to expand in the phone arena. Music and video they have. Books? Not particularly good–and Nook is strongest where Sony is weakest, the US. Plus, like Rakuten; absorbing Nook before somebody else grabs it removes a competitor from the field.

Lots of players could justify picking up Nook. Precisely because the US ebook market is leveling off. In times of (temporarily?) reduced growth, market share is more easily bought than grown.

Nate Hoffelder December 28, 2012 um 1:28 pm

Fair enough.

I still think the most likely outcome will be a consortium of publishers continuing to buy Nook Media piecemeal.

You’ve shown that there are any number of companies who would have been interested in buying Nook media outright (MS tops the list). The only reason I can think that no one has done so is that B&N doesn’t want to give up control, so all that’s left is for B&N to sell parts of Nook Media as it circles the drain.

fjtorres December 29, 2012 um 9:29 am

My expectation, too.
And selling it piecemeal means a Nook with many masters, many missions, and no clear focus.
Bezos would enjoy that.

Nate Hoffelder December 29, 2012 um 9:51 am

I’m not worried about the many masters issue, though it would result in a lack of direction. My greater fear is that selling it off piecemeal will fritter away the money papering over the cracks rather than fixing the issues.

If that goes on long enough the cracks will have grown big enough that there might not be anything left to rescue.

fjtorres December 29, 2012 um 11:56 am

That too.
Frittering the Nook equity piecemeal can only lead to a bigger problem down the road.
You have to wonder why the deathgrip, too. Cashing Nook in would be more money than they could make off B&N entire for decades. Not a wise business move.
I sure hope its not an Adelphia-type situation.

Fbone December 28, 2012 um 12:34 pm

Lots of private equity firms around as candidates. They are turn-around specialists.

There’s even Warren Buffet as a long shot.

Glenn December 28, 2012 um 12:05 pm

I just bought a Nook HD+ for my wife for Christmas and we find it to be a great product. Whatever they were doing wrong in the past has been smoothed out now. The price is also a very good selling point.

kurt December 28, 2012 um 4:46 pm

Got my HD+ too a few days before Christmas – nice quality
The store was also annoyingly busy – i mean packed – i don’t like crowds and was ready bail by the time i got from one side of the store to the other

Had to wait behind 4 or 5 others getting nooks
They also had run out of 360 cases for the HD+

Seems to me they had money pouring in but this was just one brick and mortar

Paul December 28, 2012 um 12:12 pm

I think part of it is the way the web site is designed. It assumes you already know what book you’re looking for when you go there, unlike amazon which is collecting a trove of data on you when you visit and keeps trying to offer similar books to what you’ve bought in the past.

Saying that I’m surprised at the large discounts Amazon is offering on print books. They can’t be making money at it.

Nate Hoffelder December 28, 2012 um 12:42 pm

Does anyone else get the feeling that Nook media might be a little overvalued at $1.8 billion? I thought it was questionable when the spinoff was first announced as Newco, and now that sales are flagging I think i was right.

Olympia Press December 28, 2012 um 1:25 pm

I remember reading about Nook’s BOGO sales on this site a few weeks back, which sorta told me all I needed to know. Then Kindle’s insane marketing (no men in the commercials… at all) indicated that they weren’t gonna do that great. I would have expected Google to sweep the floor with both of them, the way the original Nexus 7 caused Kindle Fire to go "out of stock," but after Sandy cancelled the November product launch, maybe Nexus didn’t do that hot either, though Google has a lot more resources than the other two.

fjtorres December 28, 2012 um 1:35 pm

I’m not sure the Kindle ads are that insane.
Guys are stereotypically gadget-aware so focusing the ads on the ladies is targetting people who may not be as aware of the devices. Besides, guys will look at commercials with cute ladies regardless of what the ad is for. 🙂

fjtorres December 28, 2012 um 1:32 pm

Probably. That’s why I’m using a bogie of US$1billion.
It’s really a function of who is buying and why, though.
Flagging sales of hardware is one thing, ebook sales and installed based are another.
Their hardware business may not be a big grower but they do have a substantial installed base so if the buyer is more interested in selling ebooks than in Nook readers and android tablets (Microsoft, for one) the fit would be there.
They do have a lot of useful assets that just aren’t performing; how many people are even aware of NookStudy? Or: they have college bookstores, NookStudy, and the NookHD+, but don’t have an academic-focus tablet?
There is a lot of unrealized value in Nook media that Riggio and co are frittering away with their consumer retail focus. Hardware-wise, they need to go where Amazon and Apple ain’t.

flyingtoastr December 28, 2012 um 5:28 pm

Lower-than-expected hardware sales aren’t as important to companies with subsidized systems like BN and Amazon, simply because they’re still making money from any installed base that has bought the system in the past. This very thing happened to BN last quarter: hardware sales were in the toilet, but surging content sales from all the people who had already bought into the system helped alleviate the drop.

If it turns out that content sales declined or remained flat as well it would be a major red flag, but as-it-is it’s an unfortunate, but not wholly important data point on its own.

fjtorres December 28, 2012 um 7:13 pm

Uh, lower-than-expected hardware sales means warehouses full of unsold hardware. Which is what B&N ended up with *last* year.
So now they have *two* years in a row where otherwise good and competitive products fail to live up to expectations. Which means that the fault not being with the products, the fault must lie with management and their unrealistic expectations.
And management that doesn’t understand their product and/or the market for that product *is* a major problem.

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