I’m not the first person to write an article talking about the recent fiscal 2013 year-end earnings report from Barnes and Noble. But people who decry B&N’s loss as another nail in the coffin of bookstores everywhere are missing the lead.
Don’t get me wrong, Showcasing is kind of awful and it doesn’t help bookstores at all. But it’s not showcasing or Amazon killing B&N. It’s the Nook.
Don’t believe me? Look at the numbers:
Retail $ 947,677 1,052,533 $ 4,568,243 4,852,913
College 252,295 227,891 1,763,248 1,743,662
NOOK 107,950 163,617 776,237 933,471
Elimination (30,901 ) (64,331 ) (268,723 ) (400,847 )
Total $ 1,277,021 1,379,710 $ 6,839,005 7,129,199
Retail $ 259,304 329,353 $ 1,397,859 1,452,804
College 76,131 69,781 405,076 395,311
NOOK (107,000 ) 999 (122,293 ) 68,065
Total $ 228,435 400,133 $ 1,680,642 1,916,180
Selling and Administrative Expenses
Retail $ 208,244 262,244 $ 1,023,633 1,130,311
College 72,341 69,600 293,618 279,364
NOOK 69,895 77,988 353,125 329,777
Total $ 350,480 409,832 $ 1,670,376 1,739,452
Retail $ 51,060 67,109 $ 374,226 322,493
College 3,790 181 111,458 115,947
NOOK (176,895 ) (76,989 ) (475,418 ) (261,712 )
Total $ (122,045 ) (9,699 ) $ 10,266 176,728
EBITDA $ (122,045 ) (9,699 ) $ 10,266 176,728
Depreciation and Amortization (55,725 ) (58,968 ) (227,134 ) (232,667 )
Interest Expense, net (9,510 ) (8,629 ) (35,345 ) (35,304 )
Income Taxes 68,639 20,381 97,407 25,600
Total $ (118,641 ) (56,915 ) $ (154,806 ) (65,643 )
As you can see from the above, Retail and College are actually doing alright. The problem is that B&N is taking such a bath on NOOK that it’s dragging down the rest of its business.
Why is Nook failing?
In short it’s because Barnes and Noble is trying to be a better Amazon than Amazon is and they’re not going to succeed at that. Amazon is just too far ahead in that space.
Nook was not ever going to be sufficient to let B&N compete in Amazon’s space with Amazon. As a result the retail and college segments have to carry the losses posted by the (expense heavy) hardware and the not-particularly profitable ecosystem of the Nook.
What should B&N be doing instead?
Barnes and Noble is doing one thing right by cutting back on the Nook tablet business, contracting out development of co-branded tablets to a third party. I’d go a step further and also do the same with the black and white e-readers but they’re a dying technology to begin with.
What B&N should be doing is concentrating on ways to increase foot traffic into stores and ways to get those walk-ins to buy.
And I’m going to suggest something crazy – B&N should be looking to the model of smaller, local shops for a way forward.
Establishing smaller stores in high traffic urban areas, populating those stores with educated and engaged sales staff (and putting some of that staff on the floor) and then giving local stores control over at least 50% of inventory so that the stores have diverse content could help with this.
If people are going to showcase anyway give them the opportunity to do so more easily – but then put a friendly and well-read salesperson right there to try and convert that cover search into a book buy on the spot.
You know, add value.