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B&N Lost a Ton of Money This Holiday Season

What B&N stores looked like this holiday season

What B&N stores looked like this holiday season

For the past year or so I have been pointing out that B&N’s sky is falling, and today have come true. Barnes & Noble released details today on their sales this holiday season, and the details are so bad that I am reminded of Borders' news in early 2011 that they were insolvent. B&N is not quite that bad, but now I see why they needed that 90 million dollars which Pearson invested in Nook Media.

Today’s news covers the 9 week holiday season, the period in which American retailers expect to cover their losses from the rest of the year, to "put them in the black".

FYI: That is an reference to old-fashioned ledgers, where a profitable day was recorded in black ink, and a money-losing day is written in red ink. It’s also where Black Friday got its name.

Sales via B&N brick-and-mortar stores and the B&N website dropped 10.9% this holiday season, compared to the same period last year. Retail sales of Nook hardware in particular fell below B&N’s expectations, belying the initial good sales over Black Friday weekend. “Nook device sales got off to a good start over the Black Friday period, but then fell short of expectations for the balance of holiday,” CEO William Lynch said. “We are examining the root cause of the December shortfall in sales, and will adjust our strategies accordingly going forward.”

The Nook segment had revenues of $311 million for the nine-week holiday season, down 12.6% as compared to last year. This is attributed to both fewer units sold as well as lower selling prices, and the loss was only partially ameliorated by an increase in digital content sales, which were up 13.1%.

Even though quite a few of my readers disagreed with me, I’ve been worried about B&N’s Nook sales for quite some time. Ever since they ran a couple BOGO sales last Spring, and then followed them up with regular sales on refurbs, I’ve been convinced that the Nook hardware has been the albatross around the neck of B&N. And even as far back as the last holiday season there were signs that B&N was having difficulties moving hardware; sales of the Nook Touch were far below what B&N would have liked.

That’s why they decided to spin it off, and that’s why they’ve picked up piecemeal investments from MS and Pearson.

It’s a pity they have not sold it yet. When I last covered this bad news, one of my readers pointed out that there were any number of potential buyers, including Rakuten, Microsoft, Best Buy, or a retail conglomerate like BAS Group or Tesco.

Right now I’m really hoping one of them might be interested in rescuing the Nook.  In spite of the bad news today, there is still some real value in Nook Media. Oh, it’s not worth the couple billion valuation which B&N has placed on it, but as an ebook platform what it really needs is to go international and or be picked up by a company which has the deep pockets B&N lacks.

image by Monica Arellano-Ongpin

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ucfgrad93 January 3, 2013 um 10:26 am

The couple of times I went into my local B&N during the holiday season it was packed. Long line waiting to check out and a bunch of people looking at Nooks.

Colleen January 3, 2013 um 10:39 am

Yeah – not disputing the reports, but my local B&N is packed all the time. The cafe might be a big part of it as it’s a popular meeting place but still it’s confusing as to why brick and mortar profits are down. Maybe it’s localized.

Will Entrekin January 3, 2013 um 11:02 am

I’m with you on this, Nate. I think I’ll be stunned if B&N is still around in five years. I’m also totally unsure what the print market will look like when it does. Retailers like Target, Walmart, and Costco might pick up some of the commercial fiction slack, but their quantities will always be necessarily limited compared to what one could find at a Barnes & Noble.

So far as how Black Friday got its name, though, it might be a little more complicated:

The "black ink" version does make for a good story, though, doesn’t it?

Nate Hoffelder January 3, 2013 um 11:06 am

That I did not know. Thanks!

Mike Cane January 3, 2013 um 11:26 am

Eh. They made the noose that’s now choking them.

flyingtoastr January 3, 2013 um 11:35 am

So when Amazon reports a disappointing quarter are you going to write a cute little post-mortem for them as well?

Nate Hoffelder January 3, 2013 um 11:42 am

I already reported that the Kindle had disappointing sales. And I don’t see Amazon mismanaging the Kindle as badly as B&N has handled the Nook.

One difference between B&N and Amazon is that Amazon is the type of company that B&N needs to sell the Nook to. Amazon is bigger and in more markets, and that means Amazon has deeper pockets. B&N is closer to being Waterstones, Amazon UK partner, than it is to being Amazon (aside from having more stores).

fjtorres January 3, 2013 um 2:46 pm

Amazon’s Kindle sales may have been below expectations but they don’t appear to be a total disaster. The (smaller )FireHDs seems to have sold quite well according to their Internet footprint:
Their pre-holiday foorprint was 4.48% and they increased it by two thirds to 7.51% of traffic. Not a bad growth ratio for a single quarter.
Also, Amazon is still rolling out their new lineup internationally so any units that didn’t sell in the US can be sold elsewhere instead of sitting in warehouses indefinitely.

Fbone January 3, 2013 um 1:13 pm

B&N was also affected by Hurricane Sandy. Some stores were closed the first week of their reporting period as much of NJ, CT and parts of NY were without electricity.

Then people were busy recovering and cleaning up. And they still are. Hundreds of thousands still unable to return home and have temporarily relocated. FEMA’s new regulations have depressed sales of non essentials. Buying books are not on people’s minds at the moment. Just more to pack when you must move again in 6 months.

Nate Hoffelder January 3, 2013 um 1:18 pm

Except Sandy doesn’t seem to have impacted the Black Friday sales. How could it have harmed B&N in the weeks after BF?

Fbone January 3, 2013 um 5:14 pm

And how do we know Black Friday sales weren’t affected at all?

People still bought gifts for others just not for themselves. Many still don’t have homes to store them. Also, people returned to their homes in December where they saw their possessions destroyed including their books. That doesn’t encourage you to buy paper books when another storm can ruin them too. It makes one think very carefully about stuff one buys.

Nate Hoffelder January 3, 2013 um 5:23 pm

Because B&N said that BF sales were good.

fjtorres January 3, 2013 um 5:58 pm

Looking at the BF prices, it sounds like everybody who was going to buy a Nook for the holidays bought it on BF. (Or through the Staples sale.)

Fbone January 4, 2013 um 1:18 pm

Exactly what does "good" mean?

Nate Hoffelder January 4, 2013 um 1:33 pm

You’d have to ask B&N. They were the ones who released positive news.

Paul January 3, 2013 um 2:18 pm

There’s also the issue of not having any really blockbuster product. i.e. its the content. The year before everyone was buying the Hunger Games and Harry Potter. That might also account for part of the sale slow down.

Greg M. January 3, 2013 um 3:02 pm

Another problem is the lack of selection. The downtown Seattle is a bit better, but stores in the burbs have too many bestseller, vampire, and teen books crowding the selves. Why go there? Eliot Bay Bookstore has a much better selection in a smaller space, but it’s fourty to sixty minutes to drive and pay for parking, so it’s a special occasion to go there. What does B&N offers me as an incentive to go there. Not much. And I worked close to one of the burb stores; I could browse at lunch if there were stuff to see other than stacks of teen vampires in love.

fjtorres January 3, 2013 um 3:15 pm

People round these parts tend to overvalue both Nook and Kindle.
Overvalueing Kindle makes Amazon appear like some giant overwhelming monster rather than the "merely" competent 21st century online retailer it is. There is also a tendency to forget that while Kindle is an important part of their business it is nowhere near the only part of their business, much less the most important. Any Kindle shortfalls are the equivalent of stubbing a toe: painful but hardly life-threatening.

Overvalueing Nook is more dangerous because B&N is skating right on the edge of disaster and they don’t have anywhere near the resources that even Amazon (which is hardly a monster in the Microsoft-Google-Apple league) has. B&N doesn’t have any margin of error yet for two years now have repeatedly overestimated Nook’s sales potential. Their devices have appeal, a lot of people like them. But nowhere near as many as B&N (and their fans) think will like them.

Consider this (pre-holiday) internet traffic footprint report:

At a time the Kindle FIRE had a 4.88% footprint, Nook was under 1%. Right up there with the ASUS transformer and Blackberry Playbook. And that is a measure of the footprint of all Nook tablets ever sold from the Nook Color on. Two-plus years' worth. By contrast, the Microsoft Surface RT which had been on the market one month had a quarter of their footprint.

Nook tablets may be popular in certain circles but that popularity does not translate into the big sales many people expect.

And when the people expecting big sales and being disappointed are literally betting the company on their judgment that disappointment can be deadly. Something needs to change at Nook and fast.

Jon Jermey January 3, 2013 um 4:05 pm

Presumably B&N is picking up the slack as the smaller independent bookshops close, and can expect to do so for some time to come. The same thing happened — in Sydney, anyway — with music CD stores; the little ones closed first and the big ones absorbed the remaining customers and kept going as long as they could. I think there are still one or two limping along.

fjtorres January 3, 2013 um 4:33 pm

B&N (and Borders) have been "picking up the slack" from indies for 20 years.
Right now *they* are the slack in book retail.
(And the indies that remain are fighting back.)

fjtorres January 4, 2013 um 12:03 pm

A more… curious detail emerged today via the NYT:[TdrTAB,1]
"The declining retail numbers were also troubling when viewed in the context of a rise in sales among independent booksellers. The American Booksellers Association, which has not yet released official holiday sales, estimated Thursday that its members’ sales would be up about 8 percent over last year."

I’ve seen some annecdotal reports online of people upset at B&N giving prominence to non-book items in their stores. Now I wonder if there might be more to those reports than just curmudgeonly gripes…

Is their shelf space reallocation alienating dedicated B&M pbook buyers? That would be painful.

anthony w January 3, 2013 um 4:16 pm

I was at the local B&N ( upstate NY ) 3 times through this 9 week holiday shopping season, and the store was crowded each time. Lines at check out and folks at the Nook counter.

Publerati January 3, 2013 um 4:28 pm

Problem Number One: The B&N trade stores are far too massive for the new reduced scale coming in print books. This is one reason surviving independents will be just fine. Some piece of the college stores might be sustainable, although I have heard people on the floor in newly B&N’d college bookstores say they have gotten worse due to it, not better.

Problem Number Two: standalone ereaders will become the Palm Pilots of our time as tablets and smartphones predominate. There is room for 2-3 large players in the tablet hardware space and I predict those will be Google, Apple, and Samsung (not in that order). Not even Amazon will be around five years from now in hardware — just content and reselling.

Xyzzy January 4, 2013 um 4:39 am

Same as others noted, the B&N near me was packed, and it’s usually pretty busy year-round… I wonder what the successful/thriving ones have in common?

fjtorres January 4, 2013 um 6:31 am

I would point out that an abundance of shoppers does not imply an abundance of sales.
A store can be packed full of window shoppers or buyers of single books, maybe paperbacks instead of coffee table hardcovers. The size of the purchase matters.
The reported 10% drop (on top of inflation) is significant but way less than the typical discount on books. Since what they report is total dollar volume it could just be that the typical B&N storefront customer is becoming thriftier along with the rest of the population.
Times are tough and getting tougher. Disposable income is being dunned left and right. As they say, its a new normal and those that rely on the old rules are cruising for a bruising.

Nate Hoffelder January 4, 2013 um 7:16 am

An abundance of shoppers and a shortfall of revenue could suggest that B&N had great sale offers this season, with prices that were too cheap to make B&N any money.

fjtorres January 4, 2013 um 7:46 am

Which in turn brings it back to management.
One way or another, the world they see isn’t the world they’re living in.

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