Decision Time for Barnes & Noble

Uncertainty has been hovering over Barnes & Noble ever since the retailer first reported that 2012 holiday sales— especially those of its Nook reading devices—were well below expectations. Then came the news in February that B&N founder and chairman Len Riggio was preparing to make an offer to acquire the retail trade stores. And the uncertainty was exacerbated again last Monday by the resignation of CEO William Lynch. With Lynch’s departure, two things did become a bit clearer: that B&N needs to take some meaningful action to protect its profitable store operations, and that whatever decisions are made will be driven by Riggio.

In a memo to employees following Lynch’s departure, Riggio wrote that he is “excited and optimistic about the business and will be more involved than ever.” In the memo, he acknowledged the “significant” losses in the Nook segment, but said he feels certain that the company will get the business “back on track.” He also pointed to the “very solid performance” of B&N Retail and B&N College, which remain profitable businesses.

Several publishers contacted by PW expressed concern about what is going on at B&N—but, as one noted, “not to the point where I think they are going out of business.” Another publisher said that just the thought of B&N closing down is “terrifying.” Publishers and analysts hope that B&N will find a way to extricate itself from Nook Media while Riggio takes over the retail stores. “One thing B&N knows how to do well is operating bookstores, especially with Riggio’s leadership,” said the head of one independent press. If Riggio does buy the stores, publishers would like to see the company put more emphasis on selling books, rather than on selling the nonbook items that the chain has added in recent years.

However, it’s not entirely clear how the sale of Nook Media will be achieved. Nook Media LLC is comprised not only of the Nook reading devices and the Nook Store, but the college stores as well. Even though higher education is undergoing a move to digital learning, it’s unknown whether a technology company would be interested in getting into that field via ownership of the B&N college stores.

While Microsoft, which has made a more than $600 million investment in Nook Media, is seen as a candidate to buy Nook assets, some observers believe it wouldn’t really be a good fit, since Microsoft’s Surface tablet has gained little traction in the market and the company has shown little interest in selling content. Some observers believe that Samsung would be a better candidate; the South Korea–based tech giant has been heavily promoting its new smartphone, has a line of tablet devices, and has created its own Samsung Hub, which includes e-books and would greatly benefit from the much more robust offerings in B&N’s Nook Store. One publisher said he would like to see Nook Media hook up with Kobo.

If B&N’s trade stores and Nook Media are separated, publishers and analysts are certain that the two businesses would somehow remain linked, since Amazon (and, to a degree, Apple) has shown that having a reading device is key to driving customers to its site. One of B&N’s many challenges is that the slump in sales of its devices threatens to slow the number of customers visiting the Nook Store. In a soon-to-be-released report by Bowker Market Research, the number of e-book buyers preferring to download titles for the Nook fell from 15% in 2011 to 14% in 2012, while e-book buyers favoring the iPad rose to 13% from 8%, and Amazon’s e-Ink devices and Kindle Fire were preferred by a combined 55% of e-book buyers in 2012, up from 49% in 2011. That same study (2013 U.S. Book Consumer Demographics & Buying Behaviors Annual Review) also showed that e-books, as a percentage of total sales at B&N, declined to 4% in 2012, from 6% in the previous year.

Most analysts and book industry members praised B&N for its entrances into the device market, though, all along, there were some who questioned whether the company had the financial resources to compete with Amazon, Apple, and others in the market. One thing is clear: B&N has not been profitable since it began ramping up its Nook investment in 2009–2010; as a whole, the company has not turned a profit since fiscal 2010. Publishers are hoping that Riggio will find a way to keep the nation’s second-largest bookselling operation viable. “A world in which there is one national chain committed to print books, strong and innovative independents, and a national online retailer could be a fine place to live,” one publisher dreamed.

The Evolution of Barnes & Noble, 2010–2013 ($ in millions)*

*For fiscal years ended April 30.

**Results of college stores included since the September 30, 2009 acquisition.