Barnes and Noble Case Study free essay sample

Barnes and Noble (BN) bookstore was started as a student book-exchange store. It later evolved into book retail superstores, and also incorporated online retailing, college bookstores and an ebook store. With more than 600 stores today, BN is the largest bookstore in the nation. As large as they are, they have faced a lot of challenges as well. BN started as a very innovative business. In fact, they were the first bookstore to air television ads. They were very memorable and still remain in the heads of truly loyal customers even 40 years later. They were also the first bookstore to sell best-selling books at a huge discount in order to sell more and get their name out there. They expanded throughout the country and it was almost as though they became an instant favorite overnight. They made their stores friendly with cafes and comfortable seats to sit in, so one could enjoy a book without the hassle of everyday life to get in the way. They tended towards the slower lifestyle and wanted their customers to be able to have a place they could escape to with their story and enjoy. As can be seen, BN was incredibly versatile and able to change with customer demands. They were a superstore giant and received great respect, even from those working against them. Decades ago, BN’s main competitors were Borders, Waldenbooks, local bookstores and libraries. Borders, their biggest competitor, went out of business in 2011 due to their inability to maintain their brick and mortar stores based on their declining sales. That left Barnes and Nobles in the lead, and their other competitors have also had to downsize or were wiped out of the competition. In an attempt to investigate BN further and provide more background information, a SWOT analysis was performed. Strengths One of the main strengths of Barnes Noble is the wide variety of selection of books and book-related products they offer. For seven consecutive years, they were awarded the title of â€Å"Pinnacle of all bookseller brands. † They also foresaw the rise of mobile devices and concentrated on technological changes. They opened an ebook store to sell online items such as electronic books, newspapers and magazines. Their website and applications were made available not only on desktops and laptops, but also on iPads, iPhones and several other digital platforms. Investing early in the digital market initially gave them a competitive edge . Also, as a result of being able to hold a dominant market position, the company can negotiate lower prices and thus provide customers with savings. Weaknesses One of their biggest weaknesses is having to spend so much money on legal proceedings that affect profitability. Lawsuits such as reduction in salaries and shareholders’ complaints against board of directors have massively incurred expenses on the company. Also, when compared to their competitors Amazon and Walmart, BN has a much higher fixed cost, which leaves them prone to price wars, dropping revenues and economic declines. Furthermore, BN depends on limited inventory suppliers. This puts them in a risky situation since they do not have a long standing agreement made with any of their suppliers. There is no guarantee that BN will not face a blackout in the delivery of merchandise by their suppliers. Opportunities The hold BN has on the college market, with revenues increasing year by year already, has a big potential for growth since the college textbook market is stable. Many individual bookstores are operating at a loss and that provides opportunities for BN to acquire them. BN’s image also can be put into one of those â€Å"Go-Green† groups since one of the publishers they purchased in 2003, Sterling, publishes eco-friendly planners, articles and journals. BN is also one of the top players in magazine and newspaper retail. With the customer trust they have gained, and the dominant market presence they have acquired, BN has much potential to be USA’s largest retailer in the magazine and newspaper industry. Threats The recent economic decline caused government to cut budgets to educational institutions. Consequently, colleges have to reduce the number of accepted students and cut courses, which affects the sales of the college bookstore segment of BN. The increasing popularity of e-books and cheap e-book rentals also puts retail brick-and-mortar bookstores at a disadvantage. The immense competition pressure imposed by iPad and Android tablets on the Nook also proves as an undeniable threat. Assessment Barnes Noble has a lot on their plate, and they are in a lot of trouble if they don’t change how they are operating and try to be attractive to old customers that left and new customers that could potentially bring them profit. They have emerged into a new technological field that they did not plan on entering when they opened up their first book store. Only time will tell how they react to the situation they are in and if they can succeed and change in today’s market. BN has outlived its long time competitor, which means that BN has been doing something right, but at the cost of losing millions each year as well as their previously great stock prices. BN spread itself thin in multiple markets, and the reaction of the general public is changing from paperback to tablet reading. Over the past few years of this trend, they have lost about 94% of their pre-tax earnings, and things aren’t looking up. An assessment of their challenges will prove if the company will sink or float in the future. The company has been around for a long time and has become a family name. Their problem is going to be if they can change with the times and with what the future generations will want after they work with the current generations. Change is essential to every company. BN so far has done a good job of that up until the paperless tablet era. They introduced the Nook to try to keep up, but the facts are showing that they cannot keep up the way they are operating. E-readers have been a hot category for the past few years. They seemed to have so much potential when they came in around 2007 with the ability to store hundreds of books and lightweight. However, with the emergence of full-featured tablet pcs and their shrinking size and price, the future of e-readers such as Amazon’s Kindle Fire and BN’s original Nook is fading. People would more likely read e-books on versatile tablets that are also capable of web-browsing and gaming, than be limited to only reading. Market researcher IDC estimated 2012 global e-reader shipments at 19. 9 million units, down 28% from 27. 7 million units in 2011. This attributes to the drastic drop in revenues for NOOK section as shown in Figure 1. The underlying shares sold short (SSS) for retail segment of BKS are waning approximately 7 percent annually. They are closing 20-30 stores per year. Fig 1. Comparison of revenues and EBITDA for Q1 2013 and Q1 2014 As seen in the comparison, BKS retail segment had 1 billion revenues for Q1 2014, which is a 9. 9% decrease from the previous year. The EBITDA of the company also declined 12 million compared to last year. The switch to a paperless environment is not the only reason why BN’s retail book sales have been plummeting. Amazon, the most formidable competitor to BN, offers more variety, lower prices and free shipping. Also Amazon has a detailed review system that is much preferable than BN’s anonymous reviewing system that is neither dependable nor helpful. Amazon was estimated to have sold around 22. 6% of all the books in the U. S while BN has captured just 17. 3% of the market. People in this generation have started to go paperless and want less and less to do with buying hard copies of books. Why carry multiple books when you can go paperless? That’s the thought of today’s population, so that is why hard copies of books are losing their place in the market. Books are no longer needed in today’s world. They are heavy, bulky and take up a lot of space. Electronic versions of books, however, are convenient, easy and ultimately weigh nothing. They keep your place when you leave, and aren’t damaged by misuse or harsh conditions. Electronic books contain all the information of a normal printed book except they cost less and are a more sustainable alternative to the paper books. E-books usually have extra features such as instant content that is not possible to include in a printed textbook. They can also be updated instantly without the need to be reprinted. Consequently, customers with convenient gadgets such as the iPad or the Galaxy Note, are more inclined for the ebook option these days and this makes retail bookstores a dying business. The next issue stems from the previous problem the tablet world. E-readers have hit a dead end on what was once a promising road. They originally were the latest and greatest craze. Everyone wanted a Nook when they first emerged into the market. Books were plentiful, and buying electronic books from the internet store was cheaper than paying for the supplies, gas and time to go to the store to buy a hardcopy. E-readers like the Nook had the screen resemblance of a book and had built in lights in order to read at night. This was very useful to users, as their biggest problem was that their eyes would hurt from looking at a screen for too long. The screen was made in a way that there wasn’t a screen like that on a typical tablet, but that like a page of a book. Eventually, tablets started to make their way into the world and became very popular and gained market share against many different electronic devices. The Apple and Android devices dominated the industry, because they were able to do so much more and people were willing to pay the more expensive bill to have the best technology on the market. A user could do so many more things with advanced and fast hardware and software. They could install apps in order to read books, check email, browse the web, and even play games. The Nook struggled to compete and was left in the dust by these competitors. The last issue BN needs to address is their new Nook, and how it isn’t living up to expectations or able to compete in today’s market. Apple’s iPad, Google’s Nexus 7, and Amazon’s Kindle are the serious completion for BN’s Nook. The rivalry between the companies is growing, and they each want to be better than the others. Last year, BN saw their revenue grow from people who owned their Nook and bought books through the pre-installed application on it. Unfortunately, they saw their Nook sales decrease because they decided to sell the Nook for less than they previously did in hopes of selling more and gaining more market share. Not only did the old Nook e-reader fail but the new Nook HD , which was supposed to resurrect the sales in Nook as a new tablet, also proved unsuccessful. The tablet had a nice design and competitive specs compared to other tablets. However, the extremely limited and expensive app selection puts the new Nook at a complete disadvantage to the Android tablets and IOS tablets that have millions of both free and paid apps in their app stores. The new Nook also lacks the productivity to provide customers with seamless easy use. The fact that Amazon is selling their Kindle at $59. 99 even makes the situation worse for Nook. The threat of more store closings is a real possibility if they don’t react to the problems they are facing. They can see that their profits are not great from book sales, yet they keep open hundreds of brick and mortar stores across the country. They have very large operating costs because of this, and are not making up for the amount of people that are visiting the store and buying items on a daily basis. How BN is Adapting As the bookselling industry continues to undergo transformation, Barnes Noble has adopted several strategies to stay afloat. The progression movement toward an electronic world inspired BN to enter it themselves. In addition to publishing electronic versions of products, one of the prominent strategies adopted by BN was to introduce their own e-reader. Originally successful, the Nook was meant to give BN a greater stake in the e-book market to produce revenues outside of traditional print. As the brand grew, a new line, Nook HD, was produced in an attempt to infiltrate the tablet market. In addition to expanding into the electronic world, BN turned its attention to a niche in the market, college bookstores, which it infiltrated nationwide. The failure to adapt successfully has inspired BN to launch a restructuring process, attack competitors and even consider going public. Nook In 2010, the largest marketing campaign in company history was launched to promote the Nook brand. The retailer spent over $13. 7M on the campaign, which included domestic print, broadcast, online display and outdoor advertising. This marked the company’s first television appearance in over a decade. For the first time, BN reached out to other outlets for product sales, distributing the Nook brand to American electronics retailers such as Best Buy. 7 Senior analysts predicted that most people of the time had never even read an e-book. In an attempt to reach out to these people, BN decreased its music merchandise to accommodate Nook display space in over 720 stores nationwide. To compete with rivals like Apple’s iPad and Amazon’s Kindle Fire, the Nook is constantly being updated with better quality and new features, but so far the Nook is failing to compete with the iPad and Kindle. In response, BN has also decided to form partnerships with third parties to develop different versions of the Nook. Reports have leaked information implying Microsoft, currently a 17. 6 percent stakeholder in the Nook business, is being eyed as a potential buyer of the business. If true, BN faces the tough choice of taking a chance on the Nook brand, which lost $177M last year, or selling the brand and removing themselves from the e-reader market. Based on recent activities, one would believe BN has picked the former. BN has begun offering the Nook HD+ this year at a reduced price – starting at $149. For perspective, Apple’s cheapest iPad is $399 and Amazon’s cheapest comparable Kindle is $229. Additionally, BN recently announced that they will be releasing several updated versions this year that are cheaper and offer more features than the Nook HD+. The competitive pricing might be coming too late though. BN has dug themselves into a pretty deep hole and will need a lot of help pulling themselves out. Though originally a good idea, the Nook lost purpose when it switched from a simple, paperless reader to a full-blown tablet. Trying to compete with the iPad and Kindle Fire was a poor decision. In order for the Nook brand to survive, there needs to be a return back to the basics, which BN is doing with its launching of the new Nook GlowLight this November. If BN ventures too far into the electronics industry, it will be outperformed by industry giants like Apple and Samsung. BN would be better off selling out to Microsoft than investing further in Nook HD products. Restructuring The losing battle against Apple and Amazon has led to the resignation of William Lynch Jr. , the chief executive of BN. It has also promoted the restructuring of BN upper management. 4 The failure of many past companies started with poor management. Realizing the need for change, BN began their transition at the top and worked down. In an appropriate move, BN did a full analysis of its management structure. During this process, BN found the attempts of its managerial staff to recognize the need and their ability to switch over to the online retail world to be inefficient and failing. By the time BN decided to release barnesandnoble. com in 1997, the company was two years behind Amazon, which had quickly implemented an online book store in 1995. College Marketing To further combat the decline of the industry, BN has expanded into college campuses across the country. As of 2012, BN has on-campus marketing capabilities in more than 640 campus bookstores, a 53% increase from 2009. The campus presence has allowed BN to thrive in a tough industry. Despite an increasing shift toward e-textbooks, 64. 2% of students still purchase their textbooks through on-campus bookstores. BN should focus heavily on this market moving forward, as it has a lot of potential to be significant and is expanding. In 2010, 21 million students enrolled in higher-degree US education, an increase of 37% since 2000. Of those, the average student spends roughly $900 per semester on textbooks and related course materials. BN’s hold on the market is keeping the competition from entering the college scene. For example, Amazon began offering its own textbook services, but the lack of physical space makes Amazon a weaker dealer of college textbooks. BN must find a way to stay ahead of their college competition, because if they grow complacent, BN will lose market share quickly. Creating an Environment In an attempt to pull consumers in the doors, BN has created a welcoming, leisure environment in their stores over the past decade. Couches and tables have been installed to establish areas similar to a setting found at Starbucks. This process has been seen as a successful and financially acceptable venture, possibly because BN has partnered with Starbucks to bring their high-end coffee to stores, along with the Cheesecake Factory to offer brand-name food items. In the store, visitors can take advantage of free wi-fi to utilize their e-readers. Every electronic material in BN’s chain can instantly be read for free when in stores, or customers can grab their favorite magazine, newspaper or book for leisure reading. With e-readers, customers have their pages bookmarked until their next visit. The stores are decorated to create an at-home atmosphere and contain brightly colored children’s sections, often accompanied by a stage for story hours and performances. BN has promised to keep a busy calendar of events in their stores, such as book signings or Mystery Night, where local authors can gather to talk about their mystery pieces and developing plots. Lowering Competitors Other than focusing only on internal affairs, BN has taken an additional approach. BN has made several moves with the hopes of hindering their competition. For example, to counter Amazon’s increasing presence in the electronic publishing market, BN recently stated that it would no longer carry titles published by Amazon in store showrooms. The effects of this are much greater than one might appreciate. A book predicting to sell thousands to millions of copies needs to be available outside of the electronic world, mostly for exposure but for other reasons as well. This has led best-selling authors and agents to drift away from signing up with Amazon as a publisher. Conclusions In order for Barnes and Nobles to stay in the market of competition, they are going to have to come up with a very new and innovative technological idea that the entire world wants. They need to think of things before the competition, and then continuously be better than them. They need to finalize their management and downsize to have just the necessary people that can run the company and come up with new ideas. If someone isn’t pulling their weight, they shouldn’t be kept within the company. Barnes and Nobles is essentially two companies, with the bookstores and the e-book store. The two need to mesh in order to be successful. Also, they need to use their space wisely. They have thousands of square feet of stores, but they need to find out what their customer wants in order to use the space effectively and ultimately putting the customer first and giving them what they want. They are the dominant book seller, so chances are that if they were to go out of business, it will be a huge problem, especially for college campus’. Despite the declining print industry, along with the poor choices BN has made along the way, there is still a light at the end of the tunnel. BN is still the largest bookseller in the United States. Additionally, traditional book competitors have become quite limited after the loss of Borders and Waldenbooks, along with the decline of public libraries across the country. That may have just given them their chance to succeed because there are very few physical stores left that can compete with the empire Barnes and Nobles has created.