In a two hour presentation to investors Thursday morning, Barnes & Noble executives made clear that the future of the company lies with its physical stores.
Executives listed a wide range of initiatives they are undertaking to improve bookstore sales, including providing some more details about the company’s new four prototype stores, the first of which will open in Eastchester, N.Y. in October. Additional concept stores, whose footprint will be about 20-25% smaller than a typical B&N superstore, are set for Edina, Minn.; Folsom Calif.; and Loudon County in Virginia.
The centerpiece of the new stores will be an expanded café, which company executives--from CEO Ron Boire, on down--said they are extremely excited about. Underlining the importance of the cafes, just before the presentation to investors, B&N promoted Jaime Carey, chief operating officer, to president of development & restaurant group.
The new cafes will be about twice the size of current cafes, and feature table-side service. A new expanded menu is being overseen by an executive chef that will feature “American-style” fare, as well as wine and beer. In addition to boosting sales through the cafés themselves (which now bring in a little less than 10% of annual revenue), B&N execs expect that the improved space will drive more customers to the stores and help make each outlet more of a destination center for community members.
The new stores will also have better seating and more open space than existing stores, and books will be categorized in new ways that will make titles easier to find, according to Mary Amicucci, chief merchandising officer. Despite the expanded café, the stores will still have a broad assortment of books, which will comprise about 60% of the store's revenue.
The new stores will also include more table displays, where curated titles will be featured. Booksellers will be equipped with tablets to answer customers' questions via text, and a new app will allow customers to find titles in stores through a digitally created wish list.
B&N execs said that, depending on the reception to the new cafes, they are prepared to roll out the concept to existing stores. However, the execs declined to say how many stores that may involve.
Another major initiative to boost store sales is growing B&N’s membership base. Boire said B&N has more than 6 million members who pay an annual fee of $25 to receive store discounts. Members are B&N’s best customers, Boire said, spending more than twice as much as average customers on each transaction with the retailer.
To grow its membership ranks, B&N will be experimenting with a number of new offers to increase participation rates and individual member spend. As part of that overall effort, Boire said B&N will integrate the 3 million members in its Kids’ Club program into the core program.
Throughout the chain, B&N is focusing on making the navigation of its stores more intuitive in a bid to help with discovery, Amicucci said. The key differentiator for B&N when it comes to discovery is its 28,000 booksellers, whose recommendations “cannot be replicated by any algorithm,” she said. The company will be empowering each of its stores to interact more with the community. In fact, Amicucci said B&N is going “hyper local” in the current fiscal year and has a remerchandising strategy set for 50 stores where B&N “will tailor the merchandise layout and assortment based on local customer demand.”
B&N is also working to expand its presence in three hot categories: adult coloring books/art supplies; graphic novels/manga; and young reader (age 8-12). Amicucci said B&N is planning for more growth in the coloring book segment and is not just expanding its assortment of titles but also adding new related areas such as “journaling” and illustrating.
In fiscal 2016 B&N doubled the space for graphic novels and manga while also adding more titles and keeping backlist books on shelves longer, Amicucci said. In the current year, B&N will add more titles and hold more promotions. The eight to 12 year-old demographic “cannot be undervalued,” Amicucci said, noting that they are the “number two subject sales driver” behind only adult trade fiction.
While all execs said B&N is committed to keeping books the focus at its stores, it has had success in other areas and will continue to test new products in different areas, including music (adding more vinyl records); toys and games (adding more art and science elements); and gifts (adding more artist supplies).
When the presentation turned to Nook, executives said that their short-term strategy involved cutting losses, not growing sales. B&N hopes to cut Nook’s losses to between $30 million and $40 million in the current fiscal year and to $10 million in fiscal 2018. The company is continuing to outsource more technology functions and is closing its Santa Clara and Taipei offices which will result in severance charges of $6 million in the first quarter of the current year but which will save $13 million. One area within Nook B&N hopes to expand is Nook Press, its self-publishing tool. The company will launch a print-on-demand option next week.
When pressed by analysts if B&N’s projection of cutting the Nook loss to $10 million included revenue increases, CFO Allen Lindstrom observed: to hit that target “there aren’t aggressive assumptions in there on any reversal of revenue…it’s all about [cost] reductions and how quickly we can do them without disrupting the business.”
Boire emphasized however, that B&N has no plans to completely shut down the Nook business since it remains an important element to B&N’s omnichannel sales approach and has 2 million “very active” customers.” “Walking away is not in our mindset today,” he said.
B&N CTO Fred Argir was more optimistic about the prospects for BN.com, although he acknowledged that much work still needs to be done. The recently completed overhaul of the BN.com backend, which took 2,200 additional fixes to correct problems, did not address issues concerning the front end, consumer facing part of the site. Work on that has started with the aim to streamline the buying experience in time for the holiday season. But the financial goal for BN.com in fiscal 2017 is to get back the sales it lost in fiscal 2016. Beyond that, Argir said the aim “is to get back to a growth rate, because if you remember dot-com in our business had been declining for several years.” Argir said he expects sales at BN.com to start to improve in the second half of fiscal 2017.
With its various growth initiatives and cost-cutting plans, execs projected that total EBITDA for fiscal 2020 will be between $270 million and $310 million. That projection is based on the assumption that comp store sales will grow in the low single digits along with "modest" store openings accompanied by some store closures--it plans to shut 12 stores this year.