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Barnes and Noble Prepares to Crash and Burn--Nook down 60 Percent and Stores Cratering

January 13th 2014

Barnes-and-Noble store shot

The media is abuzz with the portended demise of Barnes and Noble lead by the collapse of Nook.

Deadline NY wrote: The company’s position appears to be, it could have been worse. Barnes & Noble’s bookstores and online service generated revenues of $1.1B in the nine weeks ending December 28, it says today. That’s down 6.6% vs the period last year. But most of the decline is due to store closures. At stores open at least a year,  revenues just fell 0.2% not including Nook tablets and e-readers. “We are pleased with our holiday sales results, especially our core comparable bookstore sales, which were essentially flat and an improvement as compared to the first half of the year,” newly named CEO Michael Huseby says. It’s harder to sugar-coat the story at Nook. Its revenues – which include digital content, devices and accessories — fell 60.5% to $125M. Devices and accessories fell 66.7% to $88.7M which the company attributes to “lower unit selling volume and lower average selling prices.” Digital content fell 27.3% to $36.5M “due to lower device unit sales and lower average selling prices.”

Huseby notes that B&N had no new tablets this year, a tough comparison with last year when it had two. Without new products “we executed our plan to sell through our existing high-quality devices.” The company will have more to say on February 27 when it discloses its fiscal Q3 financials.

DigitalTrends headlined, "Barnes & Noble digital division plummeting due to poor Nook sales" stating, Barnes & Noble announced a 60 percent drop in revenue year-over-year within the digital content division of the company. This section of the company includes all current Nook hardware as well as digital sales on the e-book market. In addition, executives within the company mentioned that Barnes & Noble’s portion of the e-book market has fallen to 20 percent.  Barnes & Noble originally snagged 25 percent of the market when the first Nook e-reader was released during 2009, but that figure has continued to drop over the past few years due to competition from Amazon.

The Phily Business Journal wrote: "Barnes & Noble, Inc., the nation’s only remaining major bookstore chain, reported its holiday sales — and things aren’t looking good for the company. It reported a decrease of 6.6 percent for its retail segment, which includes physical stores and website, with just $1.1 billion in revenue. The decrease was attributed to a 5.5 percent decline in comparable sales as well as store closures. The company’s Nook segment, which includes its e-reader, digital content and accessories, didn’t fare any better. The company had a revenue of $125 million, a dip of 60.5 percent from the same time last year. Device and accessories sales were $88.7 million, down 66.7 percent from last year. Decreases were attributed to lower unit selling volume and lower average selling prices. “Sales in the Nook segment declined year-over-year largely because, during the previous holiday season, the company introduced two new tablet products, while no new tablets were introduced this year,” CEO Michael P. Huseby Barnes & Noble, Inc. said in a statement. “Instead, we executed our plan to sell through our existing high-quality devices." Huseby was appointed CEO on Wednesday after leading the Nook division. He told the New York Times that the losses in the Nook division and competition from rival companies could be causes to the company’s decreasing digital ambition. Asked to explain the decline in digital sales, Mr. Huseby said that Barnes & Noble was fighting intense competition from Amazon and Apple and deep discounts on books from other retailers that influenced Barnes & Noble’s own pricing. Analysts suggested that the Justice Department’s lawsuit against publishers, which resulted in allowing retailers to discount e-books more freely, might have contributed to Barnes & Noble’s troubles.

Business Insider offered this explanation for the expected demise: Barnes & Noble's Nook tablet was once seen as a viable competitor to Amazon's Kindle, but now it's basically irrelevant. Barnes & Noble announced Thursday that sales of Nook products plunged 61% this holiday season. The company blamed its poor sales on competition from Apple's iPad and its own failure to release a new tablet. We asked Brian Sozzi, chief equities strategist at Belus Capital Advisors, to explain why the Nook tablet failed so spectacularly. 1. Barnes & Noble's reputation as a bookseller got in the way. "Shoppers couldn’t get beyond Barnes & Noble being a destination for something they no longer want or generally care about, books," Sozzi said. "Barnes & Noble management perpetuated that by not investing aggressively enough in marketing to alter perception." 2. The company didn't illustrate the Nook's full value. While Apple and Amazon advertised their tablets as devices for reading books, streaming television shows and movies, and reading the news, Barnes & Noble only played up the book aspect of the business, Sozzi said.  3. The Nook didn't have a place. The Kindle was seen as a cheaper alternative to an iPad. Meanwhile, the Nook "had no foundation to stand on to speak to consumers," Sozzi told us. 4. Barnes & Noble dropped prices at the worst possible time. Because Nook tablets weren't selling, Barnes & Noble dropped prices as they were investing tons of money into the product. "This is a lethal recipe for an entire division going up in smoke as the Nook has," Sozzi said. Despite these challenges, it's possible Barnes & Noble could go through a period of transformation soon.

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