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Broken Business


Barnes & Noble Took a Major Hit in Holiday Sales

January 3rd 2013

Barnes and Noble store

Troubled Barnes & Noble today reported holiday sales for the nine-week holiday period ending December 29, 2012. The numbers for the faltering bookseller were down, once again, even as Amazon sales zoomed.

According to MarketWatch, the embattled retrailer suffered "revenues of $1.2 billion, decreasing 10.9% over the prior year. This decrease was attributable to an 8.2% decline in comparable store sales, store closures and lower online sales. Core comparable store sales, which exclude sales of Nook products, decreased 3.1% as compared to the prior year due to lower bookstore traffic. Sales of Nook products in the Retail segment declined during the holiday period due to lower unit volume and average selling prices."

Barnes & Noble was compelled to sell off even more of Nook's ownership to raise needed cash. The firm parlayed a lifeline deal to London-based education and media company Pearson PLC, which owns Penguin Books and the Financial Times. Pearson agreed to make a strategic investment of $89.5 million in exchange for a 5% equity stake in Barnes & Noble’s Nook Media unit, which also includes its college textbook business.

The struggling Nook segment, which consists of the company's digital business (including Nook Readers, digital content and accessories), took in revenues of $311 million for the nine-week holiday period, decreasing 12.6% as compared to a year ago. Digital content sales increased 13.1%, while Nook device unit sales declined during the holiday period as compared to the prior year. Digital content sales are defined to include digital books, digital newsstand, and the apps business. These results spelled out the increasing marginalization of the Nook in the e-book business, now easily dominated by Amazon's Kindle.

In a statement on the disappointing news, Barnes & Noble CEO William Lynch, conceded, "Nook device sales got off to a good start over the Black Friday period, but then fell short of expectations for the balance of holiday. We are examining the root cause of the December shortfall in sales, and will adjust our strategies accordingly going forward."

Meanwhile, Barnes and Noble closed yet another major store, this one in Los Angeles. The Los Angeles Daily News reported, "On New Year's Eve, David Clark turned out the lights and locked the doors to the Barnes & Noble book store for the last time. Its 11-year run at the Westfield Promenade in Warner Center was over. Clark, 44, doesn't yet know if he still has a job but planned to pop a cork or two when he finally reached his home in Moorpark." "There won't be a bottle left in the house," said Clark with tinge of sadness in his voice. The closure of the Promenade store leaves the San Fernando Valley with only a few options for big bookstores with wide selections. Borders went out of business in 2011, shutting down about a half-dozen stores in the area, and there are now just three Barnes & Nobles left in the Valley - Calabasas, Studio City and Burbank. There are also stores in Thousand Oaks and Valencia.

In Dallas, Barnes shuttered both of its Irving superstores. The Dallas Morning News reported, "Twenty-three years of deciding to open, close and relocate stores for the largest U.S. chain of bookstores gives Plano resident David Deasona unique perspective. "The closing of two Barnes & Noble stores in Irving on Monday shouldn’t be viewed as a permanent exit from that city," he says, "and it doesn’t signal that the remaining 16 Barnes & Noble stores in Dallas-Fort Worth soon will be closing, too. What it does say is that the two locations, one at Irving Mall and the other at MacArthur Park at Las Colinas, no longer supplied the company with enough shoppers, plain and simple." The newspaper added, "The need for new stores has slowed in recent years, with the advent of e-readers and tablets, not to mention online competition for bound books from Amazon.com and others."

In fashionable Reston Virginia, just outside the nation's Capitol, the Fairfax Times reported, "After attempting to negotiate a lease renewal for more than a year, Reston’s Barnes & Noble has decided to pull up stakes and leave the area. Barnes & Noble will vacate the 25,000-square-foot Spectrum Center shopping center facility in February ... The accompanying Starbucks café also will close with the bookstore, a Barnes & Noble spokesman said. The vacancy will leave Reston without any retail venues to purchase new books. Books-a-Million in Plaza America closed last year." The Fairfax Times added, "According to Barnes & Noble, the bookstore bent over backwards in an attempt to be able to remain in Reston but Spectrum Center’s owners were unwilling to renew the lease. “We tried extremely hard to come to an agreement with the property owner to extend the lease at our Reston location, but despite our offering significant additional rent, the property owner was unwilling to agree to an extension,” said David Deason, vice president of development at Barnes & Noble.

According to Spectrum Center’s owners, Barnes & Noble tried to get a rent reduction in their new lease and when they were told they were contractually obligated to pay a certain price, the bookstore decided instead to leave. “The fact is, when the time came, Barnes & Noble chose not to exercise its option to renew its lease at Spectrum. When we contacted them about their decision not to renew, they requested a reduction in the option rent as a condition of remaining,” the center’s owners said in a statement. “We listened and engaged them in discussions for a period of more than one year, allowing them to remain in the space during such discussions despite the lease's expiration. We obviously failed to reach an agreement. ... The decision to leave at this time was made by Barnes & Noble, as they possessed the absolute right to remain at a fixed option rent that was well below market. We respect their business decision to make the choice that they apparently felt was the right approach for their company at this time.”

In a New Year's Eve look ahead, The Huffington Post led its "10 bad news predictions for the publishing world" by forecasting B&N's bankruptcy as its #1 prediction. NYT bestselling author Michael Levin, wrote: "1. Barnes & Noble goes bankrupt. The B&N chain has been on financial life support for years now and only averted collapse with the confluence of the collapse of Borders and the 50 Shades phenomenon. As economist Herb Stein said, "If something cannot go on forever, it will stop." If you can't compete with Amazon for variety, if you have customer service that makes used car dealerships look like the Ritz-Carlton, and if you're in a technological arms race with Amazon (Kindle vs. Nook), you'd best spend your time trying to sell your stores and not just the latest Lee Child."

Speculation about Barnes & Noble's bankrupcty, or at least its disappearance as a viable bookseller, has been rampant due its poor sales, rapidly diminishing shelf space devoted to actual books, foggy online sales, combative customer service and corporate relations, and inexplicable inventory strategies--all of which contribute to the growth of Amazon. While faltering Barnes & Noble is shuttering stores from coast to coast, Amazon is opening warehouses across the country to speed deliveries to its mushrooming clientele. Book giant Amazon now boasts some 40 US warehouses, and operations worldwide. It's Kindle accounts for some 75% of the market.

More than a few observers say 2013 is the year Barnes & Noble will either sink or swim-- and if it swims, will it be a bookstore, a chocolate and gadget store, or perhaps just a series of showrooms for Amazon?


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