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Journal of Business Case Studies
–
July/August 2010
Volume
6, Number 4
9
Barnes & Noble, Inc.:
Maintaining
A Competitive Edge
In
A
n
Ever
-
changing Industry
Wendy Hall
, Lynchburg College
, USA
Atul Gupta
, Lynchburg College
, USA
More Clicks at the Bricks: How retail stores are scrambling to catch up with the shoppers empowered
by the Web.
The Internet hasn’t destroyed brick
-
and
-
mortar retailing, as many once feared. But has it ever changed consumer
behavior.
Headline and text from
Business Week
Magazine
(
December 17, 2007
)
Barnes and Noble 4Q down, but forecast up
.
Both Bar
nes and Noble and Borders have lost market share from aggressive discounting from online retailer
Amazon.com and discounters like Target Corp. and Wal
-
Mart stores Inc.
Headline and text from
Associated Press
on
-
line
(
March 20, 2008
)
ABSTRACT
On Christm
as Eve in 2007,
Barnes & Noble
’
s
Chief Executive Officer, Steve Riggio, sat in his
Manhattan apartment overlooking the busy streets of NYC and
was
hoping that the last minute
shoppers were
making their Christmas purchases at
the B&N Union Square flagship s
tore.
However, he could not help but worry about the increasing
competition in the
retail industry
,
specifically
, the book industry.
Riggio wondered if
shoppers
would
even be in the stores or would
they have already done their shopping on
-
line? If they
had done
their shopping on
-
line, would
they have used
Barnesandnoble
.com or Amazon.com
?
In the midst of a struggling economy,
would shoppers choose to shop at discount stores such as Costco or Target?
These were just a
few of the questions that Riggio wa
s asking himself at the end of a very tough year.
Riggio
considered where
Barnes & Noble
w
ould be in 5, 10,
or
even 20 years
. Unfortunately, with
the
increasing competition
, technological advances, and
changes in book industry
trends,
Riggio
knew
that
th
e answer
s
w
ere
not only complex;
they were
yet to be determined.
Keyw
ords:
Competitive Strategy, Value Management, Performance Management
BACKGROUND
arnes
&
Noble, Inc. (B&N) trades on the New York Stock Exchange under the symbol
“
BKS
”
and is
consid
ered the world’s largest bookseller.
1
B&N currently owns B. Dalton bookstores, located mainly in
large indoor shopping malls, as well as Sterling Publishing. In addition, B&N owns 74% interest in
Calendar Club, L.L.C.
2
B&N also sells a large amount of b
ooks and music over the internet at
www.bn.com
.
1
Barnes & Noble Press Release attached to their 2007 SEC Form 8
-
K, March 3, 2008
2
Barnes & Noble’s SEC 10
-
K 2007 Annual Report, April 2008
B
Journal of Business Case Studies
–
July/August 2010
Volume
6, Number 4
10
Currently, B&N has 798 stores in operation, 85 of which operate under the B. Dalton name.
3
B&N plans to open 35
to 40 new stores in fiscal year 2008.
4
In contrast, B&N pla
ns to gradually close underperforming B. Dalton stores.
Specifically, 882 B. Dalton stores have closed since 1982, 13 of which were closed in fiscal year 2007.
5
Barnes & Noble opened the “Original” Barnes & Noble store in New York City in 1917 and the fi
rst
“Superstore” in 1992.
6
B&N stores are very large in size ranging from 10,000 square feet to 60,000 square feet,
with most being on average of 25,000 square feet.
7
Many Barnes & Noble stores include an in
-
store café that offers
sandwiches, desserts, a
nd Starbucks coffee products. Barnes & Noble is very much focused on community and
allows each store to establish their own community events calendar, which includes events such as story time, fund
raisers, book readings, book signings, and more.
8
Barn
es & Noble’s sales consist mainly of adult trade, magazines, children’s books, mass market paperback,
gifts, music, and movies. On March 3, 2008, B&N opened Barnes & Noble Studio (
www.bn.com/studio
), an on
-
line
mu
ltimedia site intended to lure readers, publishers, and writers.
9
Mike Skagerlind, Vice President of Digital Media
for B&N, said, “Our programming celebrates the diversity and creativity that surround the world of books, authors
and readers in a way that
is useful, entertaining, and accessible. Barnes & Noble Studio will do for the book what
the cooking show did for the recipe.”
10
On March 24, 2008, B&N launched a new how
-
to website called
“Quamut.com” (
www.quamut.com
).
11
Quamut.com is published by Barnes & Noble, Inc. and offers how
-
to
information on more than 1,000 topics.
12
Dan Weiss, publisher and managing director for Quamut.com said in a
press release on March 24
th
, “Quamut.com positions Barnes & Noble as a lead
er in digital how
-
to publishing.”
13
BOOK INDUSTRY TRENDS
Barnes & Noble is not the only company affected by changes in the book industry. Significant changes in
the book industry, including the increase in audiobooks, the internet, piracy of books, musi
c, movies, and the newly
invented “e
-
reader”, which allows consumers to read books electronically on a reading device about the size of a
blackberry, are having companies within the book industry all along the supply chain taking a closer look.
14
The
Book
Industry Study Group (
www.bisg.org
), which is considered an authoritative association within the industry,
has been researching and providing the industry with a comprehensive collection of data on the trends in the boo
k
industry for over thirty years.
15
In September of 2007, the BISG released its latest “Book Industry Trends 2007”
book which includes data from 2005 through 2011. The BISG projects that total consumer expenditure will increase
only by 2.9% by the year 20
10, down from 2007, which was projected at a 3.9% increase from 2006 (see Exhibit 1).
The BISG gathers data from numerous sources, including the U.S. Census, 10
-
Ks/Annual Reports, Wall Street
reports, U.S. Department of Education, Retail Data, Publishers,
and more.
16
A time series forecasting tool is used by
the BISG to project industry trends. The “Auto Regressive Integrated Moving Averages” model or the “ARIMA”
uses historical data to look for patterns and project future trends.
17
3
ibid
4
ibid
5
ibid
6
www.barnesandnoble.com/aboutus.html
Accessed on April 17, 2008
7
Barnes & Noble’s SEC 10
-
K 2007 Annual Report, April 2008
8
ibid
9
http://www.barnesandnobleinc.com/press_releases/2008_march_4_bn_studio.html
, Accessed on April 17, 2008
10
ibid
11
http://biz.yahoo.com/bw/080324/20080324005133.html?.v=1
. A
ccessed on March 25, 2008
12
ibid
13
ibid
14
Greco and Wharton webcast “The State of the Book Industry”, found at the Library of Congress website
http://www.loc.gov/today/cyberlc/feat
ure_wdesc.php?rec=4110
6/28/2007
15
http://www.loc.gov/loc/lcib/0709/booktrends.html
. Accessed on April 17, 2008
16
http:
//www.bisg.org/conferences/BEA07_TRENDS2007.ppt
. Accessed on April 27, 2008
17
ibid
Journal of Business Case Studies
–
July/August 2010
Volume
6, Number 4
11
Exhibit 1: Summar
y of Data from the BISG showing Growth Projections through 2010
18
Professors Albert Greco and Robert Wharton of Fordham University, lead researches for the BISG,
discussed their predictions for the book industry during a lectu
re at the Library of Congress in June of 2007.
Professor Wharton stated, “Overall, the industry is growing but only at a rate slightly greater than inflation.
Publishers are profitable and sales are increasing, but the bar is being raised higher and high
er for profit margins”.
19
The major categories in the book industry are Adult Trade, Juvenile Trade, Mass Market Paperback, Religious,
Professional Publishing, College Textbooks, and Elhi (Elementary and High School) and College. Religious books
appear to
be the most successful sector and predicted to increase to $3.07B by the year 2010, which is a 50%
increase from 2006.
20
Wharton and Greco attribute this increase in Religious books to “the significant number of
publishers active in this field, the rise o
f mega churches, increased church attendance and expanded offerings on this
topic at large secular bookstore chains”.
21
Greco and Wharton also predict the Juvenile sector to be strong based on
the huge success of the final installment of the Harry Potter s
eries. Another big title such as Harry Potter could
drive sales in the Juvenile sector to $6.8B by 2010.
22
Another significant finding in the College Textbooks sector is
that there is an increase in the demand for used books and electronic access to textb
ooks.
23
One disturbing trend is the increasing amount of piracy of books, music, and movies. In 2006, the United
States Trade Representative (USTR) released their annual Special 301 Report that detailed the increase of piracy
worldwide.
24
The Associatio
n of American Publishers (AAP) estimates that more than $600 million is lost each
year due to piracy.
25
Who is Reading Books?
According to the BISG’s latest report, the total amount of time spent using media has increased, but the
hours spent actually rea
ding books is decreasing.
26
The book industry has to compete with each person’s time, and
books are not a priority. Exhibit 2 shows the total estimated time and money spent by consumers on media from the
year 2000 to 2010, as reported by the U.S. Census Bu
reau and used as the basis for the BISG’s findings. Consumer
books, magazines, and newspaper categories are all experiencing a decline, while electronic media, including
television, is seeing an increase.
18
ibid
19
http://www.loc.gov/loc/lcib/0709/booktrends.html
. Accessed on April 17, 2008
20
http://www.loc.gov/today/cyberlc/feature_wdesc.php?rec=3891
. Accessed on April 17, 2008
21
http://www.loc.gov/loc/lcib/0709/bookt
rends.html
. Accessed on April 17, 2008
22
http://www.loc.gov/today/cyberlc/feature_wdesc.php?rec=3891
. Accessed on April 17, 2008
23
ibid
24
http://www.publishers.org/main/PressCenter/Archicves/2006_April/April_03.htm
, Accessed on April 17, 2008
25
ibid
26
Greco and Wharton webcast “The State of the Book Industry”, found at the Library of C
ongress website
http://www.loc.gov/today/cyberlc/feature_wdesc.php?rec=4110
6/28/2007
ALL BOOKS
2005
2006
2007
2008
2009
2010
Publishers' Net Dollar Sales
Millions USD$
34,628.90
35,686.10
37,085.20
38,298.00
39,595.90
40,732.50
% change
3.2%
3.9%
3.3%
3.4%
2.9%
Publishers' Units
Millions
3,085.80
3,102.70
3,148.10
3,180.00
3,205.70
3,223.20
% Change
0.5%
1.5%
1.0%
0.8%
0.5%
Domestic Consumer Expenditures
Millions USD$
51,919.80
53,615.50
55,695.80
57,455.10
59,332.80
61,053.70
% change
3.3%
3.9%
3.2%
3.3%
2.9%
ESTIMATES
PROJECTIONS
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