In Praise of Bookselling

B&N plugs the pluses

by Jim Milliot -- Publishers Weekly, 2/20/2006

Convincing investors to put their money into the slow-growing book market can be a difficult task, but Barnes & Noble execs gave it their best shot last week in a presentation at a conference held by Deutsche Bank Securities. Although forecasts call for book sales to grow at a rate of 2% to 2½% annually, B&N CFO Joe Lombardi maintained that the steady pace of the industry makes it "less risky" than other retail areas. And although publishing is a mature business, demographic trends are favorable, as the two groups that tend to buy the most books—those over age 45 and the college educated—continue to expand. Even in the slow growth environment, Lombardi noted, B&N has never had a year where comparable-store sales declined.

Lombardi also made it clear to investors that the retailer expects to outperform overall industry growth. Even though B&N is the country's largest bookseller, with an estimated 18% market share, Lombardi said the highly fragmented bookselling market gives the company room to expand. The chain plans to continue opening 30 to 40 new stores annually for the next five years, with an increasing number of those outlets—now between one-quarter and one-third of stores—in malls. While B&N is closing many of its Dalton stores in older malls, new malls that serve consumers as "lifestyle centers" are a "perfect location" for superstores, Lombardi said. Ten years ago, Lombardi said, enclosed malls didn't want 25,000-sq.-ft. bookstores, but that attitude has completely turned around; now B&N is often courted to be an anchor tenant.

Lombardi acknowledged that B&N's online sales have grown at a slower pace than the overall industry, but he explained that for the last few years, B&N has been focused on improving the bottom line. Going forward, he told investors, B&N knows it needs to improve B&N.com's top-line performance.

One area that B&N has no plans to enter is the print-on-demand business. Lombardi said that while the company had a POD facility in its distribution site, the lack of volume prompted the company to close it. There are no plans, Lombardi said in response to a question, to put POD machines in stores. The company's publishing strategy, on the other hand, "is on track," Lombardi said.