The numbers are in, and it's wasn't a very productive time for Barnes & Noble. Krystallina looks long and hard at why they're in this position.
The good news: Barnes & Noble hasn’t lost as much money compared to this point last year.
The bad news: Barnes & Noble’s current CEO and founder, Leonard Riggio, says the retail environment is “terrible” and “one of the worst” in his 50 years in the business.
For the period ending July 30th, sales dropped roughly 6% at the chain, including a larger-than-expected drop in comparable store stales. The chain posted another loss, and they closed two stores and opened none. Nook hardware and ebooks dropped almost 25%.
Last month, the retailer ousted their CEO of a little more than a year, saying he was “not a good fit”. Mr. Riggio has delayed his retirement in order to helm Barnes & Noble for now through this rough period.
“It’s The Election, Stupid!”?
So what’s the reason for this slump? According to Mr. Riggio, it’s the election:
I believe the current trend can be traced precisely to the current election cycle, which is unprecedented in terms of the fear, anger and frustration being experienced by the public. The preoccupation with this election is keeping them in home, glued to their TVs and at their desktops.”
The election may be bringing a lot of uncertainty, but is it really preventing people from buying books and other entertainment? As this Fortune article points out, other stores like Walmart, Home Depot, and Amazon are doing fine. In addition, Barnes & Noble’s online sales also fell. The chain would be one of the few with decreasing online sales, especially since print book sales have been rising. (Part of the problem may be the issues surrounding the website redesign and the lower Internet traffic.) Independent book stores have also been doing well (see this list of articles from the American Booksellers Association), but Mr. Riggio was doubtful.
The CEO did admit the chain made mistakes in cutting both merchandise and personnel. Well, if you’re going to cut the biggest reasons for shopping at a local store — interaction and recommendations from an expect and a selection that makes it easier to capture impulse buyers — then it’s not really a surprise sales fell. Why drive all the way to a store if they don’t stock what you need and all the clerks are too busy to help you? As to store merchandise, I sympathize since it’s hard to determine what customers want. Focus only on books, and your audience is limited. Invest too heavily in toys, gifts, and games, and book lovers won’t have as much to choose from. It’s a delicate balancing act with a potential lose-lose situation for stores.
“Price Match the Website, Stupid!”
However, I don’t think the election is the primary reason for Barnes & Noble’s store struggles. I’ve heard all too often at various retailers that their online business is different from their brick-and-mortar stores. Fortunately, many of them — most notably big box retailers like Best Buy, Target, and Walmart – have backtracked on their hardline stance and now will match their online website. Barnes & Noble should do the same. Put reasonable limits, like online sold directly from bn.com, no online-only coupons can be used, limit one copy of an item may be matched, etc. But they are really hurting themselves, especially if they have to send out items via free shipping.
This past Labor Day weekend, for instance, Barnes & Noble had a 40% off coupon. Collections like this A Song of Ice and Fire box set were already 40% off online. In the former’s case, the best case scenario in store was $75.00 – 40% – 10% for Members = $40.50. Online, the price was about $45 – 40% = $27, plus free shipping for everyone! I looked at several books in store to use my coupon on, and I really had trouble finding a better deal than at bn.com. Take a look at the bestselling manga at their website:
Most of the non-Viz Media titles on this page are discounted; some, like Attack on Titan Volume 19 and Fruits Basket Collector’s Edition Volume 1 are at 39% off. That’s almost as good as the 40% Labor Day coupon everyday (well, until the price goes up, which could be tomorrow or never). Combine these prices with coupons like 15% entire purchase or $10 off $100 coupons (which come up fairly often), throw in free shipping at $25, and no wonder the physical stores are struggling!
Even outside of the coupons, sometimes it just seems like they would be better off giving me the store price plus 10% than paying for shipping. $4.99 for a manga on Manga Mondays — plus sometimes 15% off coupons or better — and paying for shipping versus matching the 50% price plus take off an additional $.50? Even with business discounts with UPS, they have to be paying more to ship a book to me than if I were to just walk off with a coupon at the store.
But what about those non-Members? Of course, for anybody without a Membership to get free shipping, buying one volume of a manga at MSRP is almost certainly a better deal than paying the discounted price plus shipping online. With higher-priced items, however, that advantage quickly disappears.
Even if someone reserves a copy for in-store pickup, you are charged the current store price, not the online price. Generally, this means you are paying more; the only real exception is if it’s an in-store clearance item. For Manga Mondays, sites like Amazon often end up matching the price. Prime members can get free shipping, or customers can reach $25/49 for free shipping with a much larger selection. So wouldn’t it be better if a non-Member came and took some of those 50% off manga off the shelves each week instead of having those copies languish in the bookstores? To make a sale — although a not-as-profitable one — versus a buyer waiting for Amazon or Walmart to match the price (or realizing all the deals online and choose to wait) and losing a sale completely?
Barnes & Noble’s online site often matches Amazon’s and Walmart’s prices, so customers will feel like they are getting a good deal. Many people probably wouldn’t even take advantage of price matching. I know I don’t see a lot of people doing it at Walmart and other stores, so I don’t think they’d be taking a huge hit. Just price match in store, and offer free in-store pickup at the online or store price, whichever is cheaper. For those items not available at local stores, most retailers also offer a free ship-to-store option, meaning the retailer will send a copy to the store for pickup. This would also help entice people into the store if they don’t want to spend over $25. Who knows, maybe they’ll spot something and buy more!
It’s a shame Barnes & Noble has been struggling. No one wants to see Barnes & Noble go the way of Borders. (Fortunately, according to CNN, the chain is in pretty good shape considering, with low debt and a fair amount of cash on hand.)
For me, I’ve been buying more at Barnes & Noble than ever before. But I’m also the type who stacks discounts, so their profit margin on my purchases probably isn’t the standard they want to reach. However, the chain probably could be earning more if people could take advantage of the online pricing at their local store. This would save the company money on shipping, and customers wouldn’t be tempted to buy books at Amazon or Walmart, stores which have their own free shipping programs.