Sliding doors to Barnes & Noble management
While independent bookstores are sailing with the wind in their sails, Barnes & Noble (B&N), the largest bookstore chain in the world, is in a heart of darkness. In mid-August, Ron Boire, a veteran of large-scale distribution, was fired, without too much concern, who had taken over the command post just a year ago to halt the company's decline. The B&N release flatly states that Boire "was not a good fit." Boire's predecessors, Michael P. Huseby, who resigned in July 2015, and William Lynch, in office from 2010 to 2013, have alternated in a very short period of time without obtaining the desired results. Three CEOs in three years is almost a record. At stake for B&N is truly business continuity.
It is no coincidence that the co-founder, major shareholder and operating president, Leonard Riggio, has postponed his retirement from operating positions until someone able to really put the situation back on track.
More than the stores, which fell from 720 in 2010 to 640, B&N's troubles can be attributed to the failure of its expensive and ambitious digital strategy. A strategy by no means marginal; far from it was a "lady" strategy that had all the qualities to play the game with Amazon. That there were some good ideas is demonstrated by the fact that today Amazon itself is adopting a similar strategy, but reversed. Amazon, in fact, is combining digital bookstores with stores organized around the information that digital business is able to collect. In the US, in addition to Seattle Amazon, it plans to open three more, in San Diego, Chicago and Portland, and there are talks of other openings.
B&N's problems are caused by the ebook crisis
Paradoxically it is. Because B&N had decided to bet seriously on digital as Xerox had done in the past with the lost challenge of the paperless office. B&N had done so with a truly unusual determination and conviction for a traditional commercial enterprise, investing almost all of the available resources in this project for six years. The fate of Borders, perhaps, had truly terrified the management and shareholders of B&N.
If, for example, Walmart had the same determination as B&N in tackling the e-commerce challenge, today it wouldn't find itself competing against Amazon with a gap that seems unbridgeable. The Nook (B&N's e-reader released in 2009), while still operating at a loss, in 2011 reached almost 30% of the ebook market. Then the ebook market stalled and collapsed with Argentinian rates (June 2016: -16%) due to the anti-ebook policy of traditional publishers who were and are the propellant of all B&N business. It was precisely the choices of publishers to invest in the book, penalizing digital in the short to medium term, that brought down, together with the ebook, the Nook itself and with the Nook also B&W and its digital project. As of 2016 the Nook has an 8% market share. As always happens, the causes of this decline
they're not just external, B&N lacked a vision of how to develop a competitive tablet and how to relate its devices to the ebook ecosystem.
Something similar, albeit with different causes, happened to Apple with iBooks which today is something inexplicably marginal in Apple's content offer. The ibookstore, launched with great fanfare by Steve Jobs himself in 2010, barely reaches 11% of the ebook market. Apple's inability to build a book store that is minimally competitive with Amazon's is markedly evident. With streaming music it has succeeded and today Apple Music is a major success. Perhaps the will to do the same with books is lacking. We will deal with the reasons for this semi-failure, which at one point greatly embarrassed the Cupertino colossus condemned by the antitrust also to pay a hefty fine complete with the blessing of the Supreme Court, in a future post.
The inability to intercept the new publishing phenomena
B&N and Apple, unlike Amazon, made the mistake of staking everything on the big publishers, thus failing to intercept the phenomena of new publishing which, at a certain point, produced a real parallel market, and still underground, which it is estimated at almost a billion dollars. The Association of American Publishers (AAP) publishers' ebook market is worth $729 million. The new publishing industry has instead been intercepted by Amazon which has built a conspicuous business on self-published and independent publishers that exceeds what is produced on the Kindle store by AAP publishers. With Apple and B&N, the new publishing industry doesn't find the space it deserves; visibility is non-existent and clashes with an ecosystem that is neither friendly nor open to their needs.
Quite the opposite has happened and is happening with Amazon where large-scale publishing is becoming marginal and losing market every day in favor of new publishing. Author Earnings, a resource that monitors self-publishing and independent publishing, estimates that 88% of books produced by these individuals are sourced by Amazon and that Amazon generates 80% of their revenue. B&N has lost this appointment with history.
In any case, B&N's investment in the Nook and the online store has been enormous, but nothing has been able to withstand the lethal impact of the decline of traditional publishing ebooks, the effects of which have added to the operational losses of the Nook and the decline of book sales in stores. Only in 2016 was this decline stopped with a U-turn which, however, does not involve B&N, but the independent bookstores which are taking a good revenge on the chain that had annihilated them. Remember the 1998 film You've Got Post@ with Tom Hanks and Meg Ryan, written by Nora Ephron?
B&N's messy accounts and their aftermath
In the summer of 2015 the bankruptcy of the Nook led to the exit as CEO of Michael P. Huseby who moved to head the education department. The post of CEO was taken by Ron Boire with the task of reducing the costs of the digital experience and investing all residual resources in the stores. Boire, ex-CEO of Sears Canada, Brookstore and Toys "R" Us, got to work trying to come up with a new bookstore concept, but didn't even have time to put it into practice due to the sudden and serious worsening of the accounts and the share price of B&N.
Unfortunately, under Boire's management, B&N's financial situation worsened considerably: there was a loss of $30,6 million, the stock dropped by 42%, and turnover fell by 3,7% over the previous year. The Nook lost 20%. The market has lost faith in B&N.
What is happening to B&N worries authors and publishers who have the largest place of sale of their titles after Amazon in the chain of stores. This means that if B&N goes out of business, only Amazon is left, perceived as the scourge of the traditional book industry. The rebirth of independent bookstores, which is a nice and unexpected surprise for authors and publishers, would not be able to compensate for the consequences of a possible disappearance of BN, just as online advertising is unable to give newspaper publishers back the money that is missing from the diminished advertising on the printed edition.
An outdated library model and its crisis
Without a driving digital business anymore, the core of B&N's troubles is the obsolescence of the existing library model. It is a model conceived 25 years ago. Today it no longer has the strength it had in the past to let people into the bookstore to sell them a book. All the founding principles of this model are crumbling. The offer and the wide selection of titles on display, the extension, centrality and frequency of the shops are no longer, all together, a determining factor in attracting visitors and customers. The offer and the selection, traceable at any time on the net, is overwhelming and has acted as a disruptive element of this model.
The B&N empire was built on that bookstore concept during the XNUMXs and XNUMXs, giving it a huge competitive advantage over the independent bookstores of the time that weren't able to keep up with supply and prices from the chain. Today all this has disappeared and a concept of the chain bookshop needs to be reinvented.
In fact, it happened that starting from the end of the 90s, Amazon's endless offer of titles deprived B&N of those customers who already knew what to look for and what to buy. These have stopped attending the library. Furthermore, Amazon's growing ability to deliver books at home in a very short time has closed the noose around the neck of the shops that made selection their strong point.
It must be recognized that B&N built an e-commerce offering rather early, but was never able to compete effectively with Amazon which innovated at a furious pace and without regard for the consequences on traditional businesses in which it had, unlike B&N , any interest or direct involvement.
New shop concepts
The bookstore concept that Boire and the management of B&N have in mind is very different from that of the independent bookstores in the USA and Foyles in London, which seem to have found a way out in the density of the challenge thrown at them by the market. We have already talked about this extensively in a previous post. Independent bookshops aim to push the book's intrinsic added value upwards, investing in the service offered to the reader, almost curatorship, and transforming the bookshop into an all-round cultural enterprise with events, concerts, meetings, reading clubs and smart snacks.
B&N, on the other hand, has a purely commercial approach, as it is obvious that it is, given that it operates in large-scale retail distribution. The basic idea is to diversify and expand the merchandise offer of the shops: the books should be accompanied by products that the visitor to the traditional bookshop has so far gone looking for in other types of shops. These are products bordering on the book because they are intended for leisure time, training, children, music lovers and artistic activities. The bookstore should also offer workshops on 3D printing and programming.
The Boire bookshop concept also envisages a 20/25% reduction in space compared to the current shop model and above all the presence of a restaurant to be understood whether it is part of the reduced shop or in an additional space. Based on these guiding ideas, B&N plans to open five bookstores/restaurants in 2017: in upstate New York, California, Minnesota, Virginia and Texas. These are 4 new settlements and a refurbishment of an existing shop. The store that will be opened in March 2017 in Fort Worh, Texas will be 850 square meters with an attached restaurant. It is a small store considering that the average size of B&N stores is around 3500 square meters. The Amazon bookstore in Seattle is also very contained, covering 500 square meters. The pilot store that B&N opened in June 2016 in Fredericksburg, Virginia has a larger size: 2500 square meters.
What the winning bookcase concept is is not known. However, there are some things that are known: as Mike Shatzkin, one of the most analytical insiders of the overseas book market, writes, the model of the large bookstore is anachronistic. The extension and selection itself no longer bring customers to the store. And then one idea could be to bring the store where people are and meet, as Shatzkin suggests. Easier said than done, because you have to turn the business inside out. Will it have the ability to B&N? Or will Amazon or, perhaps, Facebook?
