Strategy of Barns and Noble

University of Fribourg

MA European Business

Strategic Value Creation

Bad Strategy: “Barnes and Noble”

Prof. Dr. Michael Hilb

Student: Daria Salmina

St. Number: 15-209-372

29/10/2016

Table of contents

1. Introduction………………………………………………………………………………………………….1
2. Context and strategic move………………………………………………….......................1-2
3. Reasons for failure and implications…………………………………………………………..2-5
4. References…………………………………………………………………………………………………6-7

1. Introduction

Barnes and Noble (B&N) is the last remaining bookstore chain in the USA. Founded in 1886, the company has gone through a series of rapid expansions, which have eventually led the firm to appear in the “Fortune 500” list (International Directory of Company Histories, 2000).  

Having laid a good a start with its college books niche retail, B&N pursued innovative path to develop business further. It created the risky and yet novel concept for their bookshops, whose success was later imitated by the new players entering the market. It was the very first bookseller in America to sell books at the discounted prices that sometimes reached up to 90%. Moreover, the company pioneered the “book supermarket” retail model tailored to attract everyday shoppers with their entertainment titles as well as scholars alike (Michman and Mazze, 2001). Furthermore, it was the first book company to advertise on TV and open the superstores, which contained coffee shops, children’s playgrounds and puppet-show areas. Lastly, B&N became memorable in the industry for initiating literary awards for new coming novelists and providing books for the disabled children. Fundamentally, the company revolutionized the publishing market by carefully examining the “future” customer, understanding what is it that the “book lover of tomorrow” would want to be eliminated and added up. As such, the firm eliminated the “over-sophisticated and intellectual” atmosphere long associated with the bookstores and infused the “social element” into the book seeking process, making it enjoyable, rather than mundane (International Directory of Company Histories, 2000).

2. Context and strategic move

Thus, in many instances B&N has set the standard for competitors with its innovative vision of what may have seemed a rather conservative and difficult publishing ecosystem. However, despite its manifold successful attempts to survive in the past, the company has struggled to adjust to the rapidly changing digital-focused consumer market, where Amazon made the revelation in.

In 1997, B&N first entered the online market, where its key competitor has already been operating since 1995 and had sales of $147.8 million by 1997. By 1999, the threat from the online giant became even more “tangible” with a market value of $18 billion in 1999, which is three times higher the sales of both off-and-online activities of B&N. Amazon gained a momentum by delivering a unique book retailing concept, which allowed them to save on the warehouse storage, inventory holding and working capital, as well as to provide significant benefits to customers no offline retail environment could offer. B&N believed that the paper book market would no longer remain financially feasible in the long run and revised its business strategy to compete against Amazon with the key objective to become the largest American e-retailer. To do so, B&N cut back the warehouse storage by reducing the amount of titles available at the store. Next, the company closed a number of bookshops in order to move most of its sales online and segmented the company into divisions. By doing so, they managed to save money and  reinvest it into their online business. Despite their loyal customers’ frustration caused by the stores’ closings, the firm managed to increase sales and stay afloat for several years (Janetschek, 2012).

However, in 2007, Amazon launched its Kindle e-reader, the full stock of which was sold in the first 6 hours. The following year, Amazon’s e-book market share was 90%. In 2009, B&N launched its e-bookstore and the first e-reader Nook. In the years of 2010-11, Nook managed to acquire 30% of the market share from the Kindle and the future prospects seemed bright. On the “verge of happiness”, the company continued to push the sales of their e-readers by “transforming much of its prime retail space into Nook showrooms” (Zara, 2012). As such, those loyal to paper books, who once shopped in B&N stores, were left feeling unwelcome unless they have come to purchase the Nook. Ironically, those “loyalists” appeared to be almost the only ones remaining faithful to Nook even after its failure. In 2012, however, the sales of Nook have drastically declined. Left with a stock of over a million devices, the company had no other option, but to offer refurbished and bundle deals throughout 2012-13. In an attempt to revitalize their position, B&N created a subsidiary called “Nook Media” to decrease pressure of shareholders and focus on Nook alone, separate from its book retail activities. They further made a deal with Microsoft, which purchased 17.6% of shares of the “Nook Media”, invested $300 million and agreed to collaborate on future developments of the Nook e-reader. As the joint venture developed Nook app for Microsoft's Windows 8 operating system, the agreement was yet terminated in 2014 with Nook and B&N digital content sales decline to 63.7% and 21.2% respectively (Alter and Gelles, 2014). Since then B&N has never managed to recover. Since the Nook’s launch, the company has lost over $1 billion on the e-reader alone. Although they separated the “dying” “Nook Media” division into an individual company, currently Nook does not show signs of commercial viability and operates steeply at the financial loss (Fiegerman, 2014). Conversely, it is the company’s “brick and mortal” retail business that actually celebrated positive figures throughout 2015-16 (Mance et.al, 2015).