Seeking Alpha has a lengthy transcript of the recent Barnes & Noble earning call, and it’s an interesting read (even if I did have to google the odd bit of marketing or financial jargon from time to time). Effectively, Barnes & Noble is doing the best it can in damage-control mode, trying to wallpaper over the rough spots and keep investors interested while the Nook ship continues to sink like a stone and the company is either unwilling or unable to disentangle itself completely.
As part of the attempt to paint a rosy picture, CEO Ron Boire referred to a phenomenon he called “digital blowback,” in which consumers are ostensibly preferring to return to physical ownership. (At least it’s more picturesque than “digital fatigue.”) Be that as it may, the Barnes & Noble reps spent a good deal of time talking about how to reduce the Nook’s losses, to the point where someone in the Q&A session that followed asked them outright why they didn’t just dump the Nook altogether. (They proceeded to ignore the question for several minutes while they addressed something else the questioner asked.)
In fact, more than one analyst asked about that matter. The second one pointed out it might actually be cheaper in the long run to give existing Nook customers a B&N store gift card than to go on taking Nook losses year to year. But apparently B&N is still too attached to Nook to give it up. More than once they talked about how important Nook was to their “omnichannel strategy to offer any book, any time, anywhere, and in any format.” Ron Boire replied:
I think the way to think about that is we have 2 million very active customers in the NOOK business that are also Barnes & Noble customers. So to me it’s like cutting off your leg to lose weight which I may have thought about at one point or another but it’s probably not the most productive use. Now we’re — it’s not like we just sit here and go, well, can we keep tweaking it, tweaking this? We’re thinking about different strategies for NOOK that could be less capital-intensive, partnership strategies, etcetera.
What we know today is what’s reflected in the plan and we’re going to keep working to improve NOOK and how it’s positioned within the Company and the economic results of that. We don’t feel like walking away from it in its current state or what we project it as is accretive. So we’re going to certainly work to approve that through partnership and other strategies; but walking away is not in the mindset today.
They made a lot of noise about how good a job they’ve done paring down Nook expenses so far, including outsourcing a bunch of stuff to India. They bragged about all the businesses they’ve exited—the gaming app business, the video business, and the entire UK market. They also claimed that Nook makes up 9% of the overall US e-book market, which seems unlikely at best; Nate Hoffelder at The Digital Reader is highly dubious of that particular statistic. In any event, it was somewhat amusing to see them waxing so enthusiastic about how well they had managed to reduce the Nook division’s losses while still insisting that they had to hold onto this loss-inducing division at any cost.
There was also a presentation from Chief Digital Officer Fred Argir on how they’re going to try to improve the BN.com website. The word “omnichannel” came up again, and Argir talked about the importance of mobile to e-commerce and how they plan to simplify and “optimize” the desktop site for mobile devices. Discoverability, engagement, redesign, reduced clutter, blah blah blah, but not one word about how it is that customers can order goods from BN.com for pickup at their local store and then get charged the store price instead of the website price when they go to pick it up, or the way B&N doesn’t bother adjusting customers’ pre-orders when the purchase price drops before the item comes out.
Other topics that saw a lot of discussion included B&N’s new strategy of expanding its cafés in some locations to offer more food, beer, and wine, and plans to expand “digital assists for associates” with tablets on the sales floor to complete transactions, and the ability for customers to text in-store staff from their smartphones for assistance. They don’t miss a chance to brag on how well their toy department and vinyl records are doing, either. Something else the B&N reps mentioned was that they’re going to try to “[increase] labor productivity in our stores,” which I’m sure is something all the already-overworked B&N employees are just delighted to hear.
The sense I got from wading through all the marketing jargon is that B&N’s physical stores are still doing pretty well, their Nook division isn’t (though they may cut its yearly losses to only $10 million by 2018!), but even with the money it’s losing, the “omnichannel” bragging rights Nook confers are simply too valuable to give up at present. (But apparently not valuable enough to do more than try to cut the losses. I didn’t see any mention of any initiatives aimed at luring in new customers apart from the release of “a new Samsung device” and a nebulous mention of “exploring additional partnerships.”)
I do hope they know what they’re doing. Will those Nook bragging rights still be so valuable when they’ve pared the division back to skin and bone in the interest of stemming the bleeding? Should the hassles UK Nook customers went through serve as a wake-up call to US Nook consumers, regardless of how fervently B&N claims it’s not giving up on the Nook?
I think it would be great if the Nook could make a comeback and once more prove to be a serious competitor to Amazon. But I don’t see that happening as long as B&N’s chief focus on it is simply trying to lose less money. I wouldn’t be too surprised if they finally did give up on it altogether given another year or so.