B&N Priming Publishing Pump

Expanding its publishing operations is "the primary initiative of the company going forward," Barnes & Noble CEO Steve Riggio told analysts at an investors' conference sponsored by the Prudential Equity Group last week.

In remarks that echoed statements made in previous discussions with analysts, Riggio said B&N's publishing program is the most effective way the company can differentiate itself in an increasingly competitive marketplace. In addition to competition from other bookstores, B&N now must compete with mass merchandisers that sell books as loss leaders, Riggio said, sometimes "just across the street" from a B&N store, while outlets as disparate as Home Depot and Toys R Us also carry books. Booksellers also face growing competition from online stores, as well as a growing market for used books, Riggio noted.

B&N's publishing program provides the company with exclusive products and higher margins, while allowing it to give more value to customers in the form of lower prices, Riggio said. B&N will continue to employ a low-risk investment strategy that limits publishing to "tried and true categories" that B&N enters based on "market intelligence," Riggio explained.

Sales of B&N's classics line have been "phenomenal" Riggio said, noting that he expects to add about 100 titles this year to the 100 titles already in the line. In a new wrinkle, B&N will release some classic titles in $7.95 hardcover editions in time for Christmas. A line of children's classics will be released next month, and abridged editions of children's classics for kids with reading disabilities are set for publication in 2005.

Riggio told the analysts that while they may have used Cliffs Notes when they were young, today's kids are using B&N's Spark Notes. Spark Notes is "a multimillion-dollar business," Riggio said, noting that there are 150 titles available in the line, which, he said, "outsell the previous line of books we carried before." B&N is extending the Spark Notes brand to include such areas as test prep and study guides.

More and more owners of intellectual property are looking to make deals with B&N because the companies want access to B&N's customer base, Riggio said. B&N has published 24 titles in cooperation with Marvel and more books are on the way. The company has also reached a deal with Langenscheidt to publish an exclusive line of pocket dictionaries, while an agreement with Pimsleur has resulted in $9.95 dictionaries. A deal with Playboy will yield a package that will include a book on poker packaged with poker chips. B&N's line of $9.95 computer books has sold extremely well, despite the general slump in that category, Riggio said. Another B&N exclusive, Weird N.J., has sold 100,000 copies to date and Weird U.S. is due out next month; Riggio said B&N plans to do Weird titles on a number of states over the next three years as part of its regional publishing program.

Riggio told analysts they should think of B&N as a "vertically integrated multichannel retailer" that owns retail stores, an e-commerce platform and publishing properties.