Meanwhile, at Barnes & Noble: Q2 financials…not looking good for NOOK books

Meanwhile, at Barnes & Noble: Q2 financials…not looking good for NOOK books

Should we still care what happens at Barnes & Noble?

Yes.

Competition from the NOOK has apparently driven some interesting improvements in Amazon devices over the years (there was a frontlit NOOK before the Paperwhite, for example), features for e-books (B&N had lending first),  Amazon’s price matching them on e-books, and Amazon has followed B&N in dropping the price on hardware.

I think that influence has considerably weakened, though, and may continue to do so.

The NOOK has been tanking, and for a while, I thought that NOOK Books might continue online after the NOOK hardware ceased to be a brand (B&N doesn’t make the tablets any more, but there is a NOOK name).

However, this

press release

makes me more pessimistic about the NOOK Books.

Specifically, there is this, which I will briefly excerpt:

“NOOK sales of $43.5 million decreased 31.9% due primarily to lower content sales.”

Not primarily due to hardware, but to content.

Content for the NOOK is more than just e-books (there are apps, for one), but I was a bit surprised to see that.

Comparable store sales, excluding the NOOK drag, were pretty steady…only down .5%.

That doesn’t mean that p-books (paperbooks) are going to save e-books, though. They mentioned lower online sales…and increase in wages in the stores.

As a former manager of a brick-and-mortar bookstore, I’ve mentioned before, you are fighting three things primarily: rent; wages; and “shrinkage” (shoplifting, employee theft, and damage).

Those are your challenges…but you also have to be a place (nowadays) where people are willing to pay more money than they would pay online to support you.

It doesn’t look like Barnes & Noble is doing that successfully, at least as far as books are concerned.

Toys are going well for them.🙂 That is, looking at 2015 growth versus 2014 levels.

A reader sent me a link to this

Seeking Alpha post by Lutz Muller

in a private e-mail. It’s called “Barnes & Noble’s Problems Are Self-Inflicted”, and that’s the basic premise, supported by interesting charts.

The thrust is that B&N is doing worse than the print book business generally.

While the article does start out with what I would consider a debatable statement (“Barnes & Noble (NYSE:BKS) is the only remaining brick-and-mortar mass retailer of books…”) with which I would think Books-A-Million would disagree, I agree with most of what it says.

Check out the first chart in particular, showing the relative rise in what appears to be online sales of p-books perhaps combined with e-books, and brick-and-mortar bookstores.

To be clear, I think bookstores can survive and thrive in the coming decade.

They need to have personality and they need to be a destination shopping experience.

Unfortunately, I don’t think Barnes & Noble at this point is that.

I also managed a brick-and-mortar game store, and my sense is that B&N’s toy/game sales are benefiting by being in a bookstore. I think it gives them a patina of respectability for some people that going to a Toys R Us might not have.

If B&N was just a toy/game store, I’m not convinced they’d survive…they’d be battling Costco, Walmart, Toys R Us, and, importantly, the online retailers…like Amazon.

When I managed a gamestore, we would give you a hands-on experience. We knew the games (we had game nights for the employees), and we’d open a box to show it to you, if you wanted. We did have a shrink wrap machine in the back, so if everything was still good, we could shrink wrap it again.

That wasn’t my idea (I wasn’t the owner, I was a manager), but I certainly had the authority to take something out of stock rather than shrink wrap it again, if I thought it wasn’t as good as new.

I thought that store was a good shopping experience…and customers generally liked shopping there. There were several branches, including one in the Embarcadero in San Francisco (that one was mine). We did a lot of business with German tourists, who were buying role-playing game elements not yet released in Germany.

That was only a small part of what we sold…we also sold boardgames, chess sets, Go, Mah Jongg, darts (a small, but intricate part of the selection), and more.

We did some radio advertising (I was in a commercial).

We had media coverage of an event I designed, the Great Game Race.

If it had been a bookstore? It could make it, with proper management…maybe not in the Embarcadero, though.😉

Back to B&N…

I don’t claim to be good at predicting what will happen to stock, but I think this is not good for B&N tomorrow. Some people might go bargain shopping after a drop, but honestly, I wouldn’t be investing in it.

Amazon will still have challengers…remember how entrenched the big  publishers were before e-books. Amazon has an increasing amount of the infrastructure of the internet, but would it be harder to  disrupt them than it was to disrupt the near totality of the big publishers in the brick-and-mortar bookstores?

Again, I would say yes.🙂

Amazon is a lot more flexible.

It’s more of an idea (several ideas, actually) than one existing process.

I think they can swivel in a way that the big publishers and brick-and-mortar stores couldn’t.

Barnes & Noble has tried some things…I don’t know that they are the right things, but they did make an effort.

What do you think? Was Barnes & Noble a victim of circumstances, or was it their inherent vulnerabilities? Will they survive? If so, in what form? How does all this affect Amazon…and us as readers? Feel free to tell me and my readers what you think by commenting on this post.

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This post by Bufo Calvin originally appeared in the I Love My Kindle blog. To support this or other blogs/organizations, buy  Amazon Gift Cards from a link on the site, then use those to buy your items. There will be no cost to you, and a benefit to them.

6 Responses to “Meanwhile, at Barnes & Noble: Q2 financials…not looking good for NOOK books”

  1. Edward Boyhan Says:

    As I’ve said many times before, publishing sales statistics, and to an extent retail stats (both physical and electronic) aren’t very accurate (if they exist at all). So it’s hard to understand what’s going on currently — let alone forecast what might happen in the future.

    I increasingly find the brick & mortar shopping experience unpleasant (and in an exercise of wanton self degradation, I visited a Target at 9PM on Thanksgiving — just to rub that in :grin).

    This goes way beyond bookstores — to physical retail in general. The way Amazon keeps innovating, it’s hard to see how big box retailers are going to survive.

    Down here in Florida, I would have to say that the Books A Million shopping experience is much worse than Barnes & Noble’s, but that’s not saying much — both are pretty bad.

    As to the increasing cost of Amazon’s internet shopping infrastructure, I think that increasingly all of that will be covered out of AWS profits (the eStore & AWS infrastructure are largely the same — AWS was built on top of the eStore infrastructure).

    I don’t know much about games & toys, but Gamestop stores are fading — at least as far as quarterly financials are concerned — most console games are now downloaded directly from the net CD/DVD’s are things of the past.

    B&N’s future IMO lies largely with its college bookstores (and even there Amazon is starting to compete).

    • Bufo Calvin Says:

      Thanks for writing, Edward!

      Well, the question of inaccuracy in statistics and their subsequent value depends a bit on whether or not they are unequally inaccurate. My guess would be that the stats would tend to be more inaccurate in the direction of deflating online sales…in part because Amazon is such a large part of it, and is so secretive on their numbers.

      I’m not particularly concerned about Amazon’s internet infrastructure costs increasing…my thought was that there was some equivalence in the amount of traffic Amazon controls and the distribution to brick-and-mortar bookstores that the big publishers controlled.

      College bookstores have done well for B&N, but I have a hard time seeing it as a sustainable model. Millenials may still be strongly into p-books, but I don’t think the “Founders” (the next generation) will feel that way as much. As to the other items in those bookstores…if you can drone a tube of toothpaste in an hour, or more likely, pick it up at a locker on campus, the need for that sort of physical facility on a campus almost disappears.

  2. Tom Semple Says:

    On Mobileread you can read about all sorts of problems people are having with Nook infrastructure. They recently updated the Nook app for iOS 9, but the new iPad multitasking features for Split View and Slide Over don’t work correctly: it is as if they don’t have anyone testing. So yes, self-inflicted.

    • Bufo Calvin Says:

      Thanks for writing, Tom!

      Well, I think the other side of the argument would be that a supposed lack of testing could be because they have to compete with Amazon prices, and therefore cut expense. The question would be, was it a choice to reduce testing (if they had it before), or were they effectively forced into it?

      That said, I do think they have made some ineffective decisions…and that could have been one of them.

  3. Man in the Middle Says:

    I went to Costco to buy another pair of PJs yesterday (1pm Friday), and found the lines at the registers so long I abandoned the purchase and left, vowing not to return until after Christmas. (The returns line was also out the door.) I hadn’t considered ordering the same PJs from Amazon until reading this, but certainly will consider doing so now. That suggests you are correct – bad service at even popular local stores with great products and prices may doom them compared to Amazon.

    • Bufo Calvin Says:

      Thanks for writing, Man!

      That’s an example of a bad shopping experience…and yes, if Amazon has it, you could probably get it a lot less painfully that way.

      By the way, it can be even worse in many stores right after Christmas, due to returns and people spending gift cards. However, that might be different at Costco…they may have it more compartmentalized.

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