What is Barnes & Noble doing? Does it even know what it’s doing?
These are questions that come naturally to anyone who’s been observing the company’s decline over the last few years: the dwindling profits, the store closures, the failure of the Nook, the rapid-fire hiring and firing of CEOs, and so on.
The latest batch of tea leaves to read comes in the form of tidings (via Publishers Weekly) from B&N’s annual meeting, and B&N’s quarterly conference call (presented by Seeking Alpha, and readable in one page instead of eight thanks to Instapaper).
The big word out of the annual meeting is that B&N Chairman Len Riggio is finally “throwing in the towel” on the Nook (as per The Digital Reader). Publishers Weekly reports that, “according to Riggio, B&N will focus on its physical stores and will partner with technology companies to keep a presence in the digital space. ‘There is no business model in technology’ for B&N, Riggio acknowledged.” B&N will keep selling Nook-branded devices, but will partner with tech companies to make them for it instead of keeping a hand in designing them itself.
The funny thing here is that this is actually news to anyone. Since B&N shut down the Nook app store last year, “partner[ing] with technology companies to keep a presence in the digital space” is all B&N has been doing with the Nook. Even the new Nook Tablet 7, which runs plain-vanilla Android (to the point where I could install the Kindle app and download a book on the store demonstrator model), was designed and made for B&N to sell by a Chinese OEM. The only story here is that B&N’s chairman is finally coming out and admitting it.
In the Publishers Weekly piece about the annual meeting, Riggio (finally) admits that B&N simply didn’t have the culture or financing to compete with Amazon when it came to dominating the ebook world, but felt it didn’t have any choice but to try anyway. And so it did. But now, in an attempt to get B&N back on solid ground, Riggio (and new CEO Demos Parneros, in the quarterly conference call) is going to focus exclusively on bricks and mortar.
The quarterly conference call does, of course, need to be taken with about an entire salt shaker, given that the entire purpose of such a call is to cast the worst news in the best possible light so that the shareholders won’t revolt. In the call, Parneros and other B&N officers discuss their plans to concentrate on store performance and get B&N back on its feet so that it can (hopefully) start opening new stores again in a year and a half or so. (Never let it be said that Parneros sees his glass as half-empty.)
And there are some interesting things in this call, that I haven’t seen mentioned anywhere else. For example, B&N is pioneering its own “ship-from-store” program, like the one I mentioned Best Buy is using, in which they ship books from the closest store to the person who ordered them. It started out as a four-store test, and then expanded to 60 stores. Parneros is optimistic about its performance so far.
Parneros also devotes a good amount of the talk to discussing how B&N is working on “a number of initiatives to increase the value customers derive from shopping at Barnes & Noble.” The store is running various price tests tied to its membership program to see how it can best be made to work, as well as improving store signage and layout and figuring out how to “reduce unproductive merchandise.”
He adds that B&N has installed customer counters (whatever those are) in all its stores and reintroduced mystery shopping, as well as hired a number of new executives to oversee the store growth initiative. (When all else fails, always hire new executives! Hey, it’s worked for Len Riggio so far, hasn’t it?) And it’s also redesigning its web site.
And, of course, B&N is looking at other ways to reduce costs and improve efficiency.
This includes our new prime-time program where booksellers focus exclusively on engaging with customers during peak hours as opposed to doing tests. We expect this initiative to increase conversion through higher customer engagement while decreasing costs by reducing non-productive tests.
Gosh…engaging with customers. Who’d have ever thought of trying something like that?
During the question and answer period, Parneros was fairly evasive when it came to discussing any changes the company might make to its membership program. Apparently the program works reasonably well as it is, and they don’t want to kill the golden goose, but they’re trying various little experiments to try to figure out ways it might be improved.
Another interestingly vague non-answer came when Parneros was asked about B&N’s relations with publishers. He replied:
My experience over the last couple of months as I’ve met with many of our top publishers – I obviously haven’t been to everyone yet, but I’ve had very productive meetings with our publishers who share similar goals to us. And they’re very focused on really providing the great experience in store. The teams I think partner very well together. We’ve actually established an even better cadence to meet frequently and to share successes and to challenge one another. So I think obviously having stores and product by using touch and feel and discovery have the highest importance to them and to us. So I’d say the relationships are productive, they’re good and we’re just looking for ways to make them even better. So I don’t see any sort of shift at this point. Obviously I don’t have a deep perspective on the past, but from my experience over the last six to nine months, I feel pretty encouraged.
So, after stripping out the prevarications and doubletalk, the conclusion I come to is that…apparently Barnes & Noble and the publishers like each other and aren’t planning on any big changes at this point. Well, I…guess that’s a good thing?
Beyond that, there was some hemming and hawing about whether B&N was going to move locations and/or open new stores in neighborhoods where it had previously shut down stores, and are malls good places to be anymore or not. Parneros averred that Amazon’s retail stores were an entirely different kind of thing than B&N’s stores, and so shouldn’t have too much of a competitive impact on B&N stores in the same areas where Amazon chose to open them. Also, B&N’s new in-store restaurants are very nice and stuff, but B&N can’t figure out how they’re affecting book sales yet. And B&N also made some vague and nonspecific noise about the possibility of reducing the square-footage of some of its stores. (Perhaps so they could pay less rent on them?)
Also, Parneros held that the 15-cent dividend Barnes & Noble continued to pay despite declining sales and revenues and such (and that Nate Hoffelder remarked on in a post of his own) wasn’t a problem. “I expect to continue to pay the dividend as long as the free cash flow supports it,” he insisted.
It’s interesting to consider that, judging from this quarterly call, you could assume that Barnes & Noble was still a pure bookstore, rather than devoting huge swaths of aisle space to non-book things like toys and geeky stuff (the same sorts of things that ThinkGeek’s new stores are selling, in fact). I wonder if any potential square-footage reductions will trim down the proportion of non-book things B&N sells? Somehow, I doubt it. If those things didn’t make money, they wouldn’t be in B&N stores.
Is B&N finally “dumping” the Nook, as investors have been clamoring for it to do for months or years? At least in part, it appears. B&N will still be selling Nook-branded devices, but letting others make them for it. I suppose it might just as well; it won’t cost it much to foist design responsibilities off onto someone else in return for being able to slap the Barnes & Noble and Nook brand names on it.
As noted in one of the links above, I found the $50 Nook Tablet 7 to be a decent-enough little device. If it has basically the same specs and price as Amazon’s Fire 7, at least it runs 100% plain-vanilla Android, so you can install whatever you want and not be held hostage to a proprietary launcher—or advertisements that cost extra money to disable.
I was more than a little charmed by the naive optimism with which Parneros suggested B&N could actually be opening new locations by the next fiscal year. Given how many it’s had to close in recent months, that seems a little hard to swallow without the forced optimism of an investor call to wash it down. But I suppose we’ll have to wait and see. Surely sooner or later Riggio will have to hit upon a CEO who is willing and able to save the company—especially if he can convince the publishers to help.
Something else this brings to mind is just what a business genius Jeff Bezos has been. So many innovations over the last few decades have been brought about by people looking at what is, and seeing what could be if they made just a few simple tweaks. Apple is renowned for doing this, with the Apple I and the Macintosh and the iPod and the iPhone and the iPad. And Bezos did much the same thing with the Kindle—with just a few minor changes, he put a spin on the e-ink reader that changed it from something no one but early adopters and tech-heads wanted to bother with into something your grandmother could use.
And again with the recent iterations of the Fire, he’s brought to the public a tablet that is not only insanely cheap, but also reliable and useful. And he backed it with the support of a company that has deservedly become known as one of the top names in customer service. Small wonder that Barnes & Noble, whose striving days had been well in its past and was content to rest on its laurels, was caught unprepared.
Quote from title: Does Barnes & Noble CEO Demos Parneros’s optimism have any rational basis?
Stating it short and easy: No.
The real issue, I suspect, is whether B&N is entering the same death spiral that has afflicted A&P, Radio Shack, Sears, and other now dying retailers. That’s the point where, even if a retailer understands what to do to recover, there’s no longer enough resources to do so.
This video at a Sears just before Christmas of last year, starting 45 seconds in, shows what dying retailer looks like. Few or no customers, empty shelves, staff few and demoralized, and outdated displays.
The best answer to that death spiral question about B&N is “Not yet, and maybe not at all.” The resources are still there, what’s not evident is whether a successful recovery strategy exists.
In medicine, there is an adage:
In the early stages of a disease, diagnosis is difficult, but treatment is easy.
In the later stages of a disease, diagnosis is easy, but treatment is difficult.
A&P, Radio Shack, and Sears have clearly crossed the line into dying. B&N seems poised between those early and later stages. About 1999, diagnosis was difficult, but treatment would have been easy. It could have established an Amazon-like online presence selling books online and made life hard for Amazon. By 2019, diagnosis could be easy but treatment very difficult. The company may face serious issues keeping their stores open.
That Sears video gives a hint at what B&N’s death spiral would look like, should it occur.