Is Barnes & Noble in the Border(s)line?

Since 2009, B&N has fallen far behind Amazon in online sales and has been forced to close many physical bookstores. Many company critics have been arguing that B&N’s attempts to embrace innovation have failed and that the firm may soon have to face the destiny of its early rival Borders, which in 2011, not being able to compete in the changing retail landscape, filed for bankruptcy. Is B&N in the Border(s)line?

Barnes & Noble is the largest US retail bookseller, operating 638 bookstores in 50 states. B&N is also a major seller of online content, digital media, and educational products. Since its early stages, the company has been seeking ways to innovate in order to reign over the retail bookstore industry. For example, B&N was the first US bookseller that advertised on TV, launching memorable award winning advertisements, and a pioneer in offering discounts on bestsellers. Despite the company’s thirst to embrace innovation, the digital disruption of the retail bookstore industry has caused financial distress to B&N, which for the last decade has been struggling to catch up with changing consumer habits and digital innovation.

Following Amazon’s rise in 1995, the retail bookstore industry was shocked by an increasing wave of low price on-line internet sales of books by the new company. Through its online platform, Amazon could work directly with authors of bestselling books and sell directly to consumers, eliminating the need for traditional publishers, distributors, and brick and mortar bookstores. Disintermediation enabled Amazon to start offering thousands of books at prices that were less than those offered by bookstores [1]. Introduction of the e-book reader Kindle in 1997 further disrupted traditional book sales as customers now had the ability to conveniently search and purchase e-books online and instantly download them to their Kindle.

Over the years, B&N has fallen far behind Amazon in online sales and has been forced to close many physical bookstores. Since 2009, the number of the company’s retail bookstores has decreased by approximately 20% from 798 to 638 [2][8]. Many company critics have been arguing that B&N’s attempts to embrace innovation have failed and that the firm may soon have to face the destiny of its early rival Borders, which in 2011, not being able to compete in the changing retail landscape, filed for bankruptcy [3].

What is B&N doing?

In 2009, B&N launched the company’s e-bookstore and introduced the e-reader Nook as a response to Kindle. The Nook Color, came out one year later and the company managed to sell during the 2010 holiday season one million units, instilling the company with false hope [4]. Despite Nook’s early success, later versions of the device failed to compete with the technological standards set by Kindle and Apple’s iPad. For example, the version launched in 2012 had insufficient memory, which not allowed customers to load their entire collection of e-books [5]. Sales of the device have plummeted and customers have been continuously criticizing Nook for offering an inferior experience compared to that of competing products.

B&N has sought to establish several strategic partnerships with leading tech companies. In 2012 the company partnered with Microsoft, which invested $300m in Nook while B&N would create e-reading content for Microsoft products. Despite the partnership’s efforts, B&N did not manage to attract new customers and the two companies parted two years later [6]. In 2014, B&N teamed-up with Google and integrated with Google Shopping Express, enabling B&N to achieve same day delivery of its books to customers at no additional cost. The market perceived this partnership as a desperate move to gain customers. B&N was already offering free express shipping from its website. The move solely tried to capture incremental sales from Google Shopping’s customers, which were not expected to have a material effect on B&N’s bottom line [7].

So far, B&N’s various attempts to compete head to head with major tech companies such as Amazon and Apple have been unfruitful. As a result, the company has failed to drive customer adoption through its digital ecosystem and cement its position in the digital retail landscape.

Going forward:

B&N is mainly a brick and mortar bookstore company. The firm’s physical presence provides it with a competitive advantage over rival Amazon, which recently took the decision to open physical bookstores. B&N needs to focus on finding innovative ways to transform its stores in a manner that will enable it to attract traffic and engage new customers. The company has already announced the introduction of a new concept for its stores. It remains to be seen how successful the new setting will be.

On Nook, B&N recently announced a plan of cost reductions, including discontinuing the ability to rent or purchase video content from the NOOK store and shutting down e-books in the UK [5]. Although this might be a sound plan to reduce losses in the short-term, B&N should strive to increase its market share in the e-reader space. B&N recently reached an agreement with Samsung to release a new Nook device in 2017 [8]. It is critical to focus on solving existing technical issues and develop a device that will be technological robust since e-books are expected to be the dominant medium through which people will consume books going forward.

Words: 799

Sources:

[1] McCray, J. P., Gonzalez, J. J., & Darling, J. R. (2012). Transformational crisis management in organizational development: A focus on the case of barnes & noble vs. amazon. Organization Development Journal, 30(1), 39-52. Retrieved from http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/963777463?accountid=11311

[2] http://fortune.com/2016/03/03/barnes-noble-results/

[3] http://www.wsj.com/articles/SB10001424052748703373404576147922340434998

[4] https://www.cnet.com/news/report-nook-color-approaching-3-million-in-sales/

[5]http://goodereader.com/blog/electronic-readers/barnes-and-noble-nook-is-failing-because-customers-hate-them

[6]http://www.nytimes.com/2014/12/05/business/media/barnes-noble-ends-partnership-with-microsoft-over-nook.html

[7] http://money.cnn.com/2014/08/07/news/companies/barnes-and-noble-google/

[8]http://files.shareholder.com/downloads/BKS/3244102492x0x905430/F0FC19D8-7DB2-4166-91A0-22FF00544A8E/2016_6_23_bn_fy2016_investor_day_present.pdf

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Student comments on Is Barnes & Noble in the Border(s)line?

  1. Why do you believe Barnes and Noble has a competitive advantage over Amazon because of its physical presence? Do you still buy books in physical stores? Amazon, according to the below article, has over 60% market share in all book sales, and Barnes is not even close. [1] Also, doesn’t Barnes’ push towards ebooks seem counterintuitive in relation to their “competitive advantage” of having physical presence? Why would you need a physical presence if you’re trying to sell ebooks? Also, as the article below discusses, Barnes has no chance of competing against Amazon’s rock bottom prices. Given that Amazon is both cheaper and more convenient, how could Barnes possibly salvage their business?
    [1] http://www.theatlantic.com/business/archive/2014/05/amazon-has-basically-no-competition-among-online-booksellers/371917/

  2. Dimitris, I agree with you (and disagree with FFF) that B&N needs to follow a complementary strategy of brick and mortar stores and e-commerce. The fact that Amazon is opening physical locations is a testament that, even with all the advantages of online stores. book sellers need a few shops to bring in customers. I was surprised to learn that according to the American Booksellers Association, the number of bookstores in the US has grown by 25% in the past six years, while in-store sales have also grown. [1] Clearly customers still enjoy the experience of browsing in a good bookstore — perusing well-curated displays, sampling books, or simply getting the advice of knowledgeable booksellers and fellow customers. The online experience is far from replacing this with its predictable reviews and elementary recommendation system. One of B&N’s challenges I think is converting potential buyers – once you’ve found the perfect book it is too easy to open the Amazon app and order it for a cheaper price in “one click”. Here, I think B&N has an opportunity to make buying simpler too. What if you could scan the book with your phone and walk out with it, instead of waiting in cashier lines? Cutting down just a few minutes of transaction time through this and other measures may convince the customer to buy in-store and have it now, even for a few dollars more. After all, there is nothing more dissatisfying that browsing a store for hours and leaving empty-handed, only to wait for an item to arrive by mail.

    [1] http://www.newyorker.com/business/currency/why-would-amazon-want-to-be-the-new-barnes-noble

  3. Nice article, Dimitris.Two ideas I have are:

    B&N might benefit from its physical stores and brand name, however, they have to look differently at how they are positioned in the market. While they view themselves as sales channel for content, I think they are much better positioned if they view themselves as the host of a loyal community that consumes and engages with content. For example, B&N might focus on creating a community of book readers that meet-up in their physical stores, and focus on ways to build a community around millennials by making content more engaging (e.g., live events, storytelling workshops, etc.). Savvy companies recognize the value of a strong community. Think of Nike and its community of runners, Nike+, and you’ll quickly understand that creating and fostering an online community around a product or brand is a powerful way to boost marketing efforts, gain valuable insight into consumers, increase revenue, improve consumer loyalty [1]

    I think B&N should stop investing in hardware as the competition there is very difficult, and already most consumers have a plethora of devices to use for reading. Moreover, they are very late to this game, and they have also failed previously. Moreover, I think they should focus on developing a top notch digital distribution channel for mobile the same way Kindle did with their iOS apps.

    [1] http://www.barnesandnoble.com/w/the-community-managers-playbook-lauren-perkins/1120450729#productInfoTabs

  4. I also agree that B&N has a competitive advantage in its brick and mortar outlets. It will likely never be able to fully compete with Amazon and Apple in the digital space, so it needs to turn to its differentiator – its physical stores. For me, I think B&N should take a page out of Starbucks’s playbook and transform into a third home destination. By adding services like coffee shops, reading nooks, and other lifestyle products, the store can encourage consumers to stay for long periods of time. And, something that people can do in a comfortable place for a long time is read. In this sense, the store can encourage customers to buy the very thing that B&N wants them to – books.

  5. First of all, I love the title of this post. I also agree with Kumerica that physical presence is still very valuable in the book industry and is not easily replicated online; in the same way no to-do app has managed to be overtake the classic pen-and-paper checklist. The fact that really drove this home for me was hearing the CEO of a top book publisher saying that they could never get rid of print books because the print books displayed in book stores were by far the most effective advertisement and driver for ebook sales. I think FFF’s point of 60% of book sales happening through amazon crystallizes the point Kumerica makes about customers using the book store as a “fitting room” but then buying the actual product online. It is the same problem Best Buy, Retailers, and all other stores are facing, but one that has definitely not been solved yet.

    Jaime

  6. Dimitris, I also wrote about Barnes and Noble! Check it out: https://digital.hbs.edu/platform-rctom/submission/finding-a-cozy-nook-in-the-ebook-world/

    I agree with your focus on B&N’s physical store presence. However, I do not think the company will survive unless it adopts an omni-channel presence. The issues with BN.com are prime examples of where the company should focus its attention. This is an interest depiction of the number of visits the site gets and the social media attention it generates: https://www.similarweb.com/website/barnesandnoble.com#overview

    While I agree Nook is taking some devastating losses, I do not think that the Nook is the true area of improvement. I think partnering with Microsoft will only serve to bring the tablet up to speed for current customers but it will not convert iPad or Kindle users in a substantial way. I think B&N’s differentiation in creating a community around its products and stores will keep the company alive. If they can create a frictionless online purchasing platform and provide highly personalized service like an

  7. Dimitris, while I agree with your post that Barnes & Noble’s best bet is to pursue a complementary strategy of brick and mortar and e-commerce, which do you think will be most important in actually driving increased revenues? I have seen that some of the store innovation centers around bringing booze into stores (http://money.cnn.com/2016/06/24/investing/barnes-and-noble-beer-wine-alcohol-booze/), but I’m struggling to see how serving alcohol will translate into increased sales vs. turning the store into a library that serves drinks. To that end, I think innovating on their digital strategy will be much more important in actually improving their bottom line. Building on Ahmad’s point about creating a community of readers, I think tracking core customer purchasing behaviors using big data analytics could do a lot for the business in terms of identifying the drivers/conditions of book purchases. For example, I could see a world where if core customers purchased books whenever there are new releases, negotiating deals with book publishers that give these loyal, core customers advanced access to new releases could be one way to create value in a differentiated way from Amazon.

  8. Being a big Barnes and Noble fan, it’s sad to see them struggle, just as it was sad to see Borders file for bankruptcy. I wish you had discussed more what the new store concept was for B&N–that would’ve been a helpful and relevant way to gauge how they are reacting to this evolution. There definitely is a way for them to drive foot traffic into bookstores because many readers still value the ability to peruse a store to find their book instead of perusing the internet. The fact that Amazon sees value in the brick and mortar footprint is a signal that B&N has the potential to stay afloat.

    Regarding the Nook, B&N will never be a technology provider. They should’ve outsourced the research and technology to a third party who knew what they were doing. I do think that there’s an opportunity still for them in the e-reader arena. They could be the library and content provider where another company could be the hardware provider. Perhaps, if they partnered with Sony or Apple, this partnership would be a successful one. There are plenty of technology companies that haven’t entered into this e-reader industry that could provide a superior product to Kindle but don’t want to manage the content library.

  9. I think that B&N isn’t necessarily benefiting from their brick and mortar stores. The challenge is on two fronts: when I think of B&N, I think of mega bookstores.” I don’t think of having experiential learning moments as they suggest in their proposed plan for revitalization. It’s hard to change your brand identity when you’re at the scale of a B&N. It’s hard to monetize being a community center for a specific type of demographic, especially when you’re store footprint is so large. It’s hard to be the 3rd destination when your store size is 3x that of Starbucks.

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