Barnes & Noble Isn’t Gone, But Management Should Be

Turnarounds don’t happen often, but they do occur. However, it’s unlikely under the current management. It was difficult to listen to the company’s 2018 earnings call. Understandably, management has been working hard to deal with a tough financial situation. They have implemented very difficult cost reduction initiatives with no end in sight. These initiatives include:

  • Reduced store base by approximately 135,000 square feet in 2018, closing and downsizing stores, including locations where another store is not available to customers,
  • Employee layoffs at the corporate and store level,
  • Fewer full-time employees to allow stores to staff up or down.

While these initiatives are taking place, somebody must keep an eye on the company’s future. Barnes & Noble is currently under pressure from their largest competitor Amazon and mom-and-pop bookstores that are offering a superior customer experience.

Stop thinking like a bookstore!

In order to effectively compete, the company needs to adhere to a few principals. First, the company must focus on providing a unique customer experience coupled with superior and original content to be successful in the current marketplace. In today’s world, high service becomes standard.

The company operates in two segments: B&N Retail and NOOK. Management has redesigned stores to reduce their footprint and adapt to consumer demand. However, their strategy has failed to leverage their stores to increase their digital revenues organically. Instead, management has focused on growing their toys & games, café products, and gifts business, which is now 28% of their revenues, compared to 21% back in 2013.

The digital business should have higher margins, but Amazon’s disruption has caused the business to decrease from $780 million or 12% of revenues back in 2013, to $112 million or 3% of revenues in 2018. To be clear, Barnes & Noble has not made any profits from this segment, but that must also change if the company will have a future. Consider retailers across the spectrum from Wal-Mart to Home Depot who, despite encroachment from Amazon, have found ways to effectively engage with customers online. As such, they must invest heavily in R&D to improve the Nook experience (or a new platform) and take their e-commerce to the next level.

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Disclosure: I have no interest in any stocks mentioned, and no holdings in those companies. This article presents only my opinions. I am not receiving compensation for it. I am not in any way ...

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