How Important Are Physical Stores to Barnes & Noble?

Discussion
Jan 29, 2013

Where has Barnes & Noble’s (B&N) market share gone? To Amazon.com, of course, again raising the question of what B&N can do to reverse its decline.

According to the CEO of B&N’s retail business, Mitchell Klipper, one of the things the company can do to improve its position is to close underperforming stores.

In an interview with The Wall Street Journal, Mr. Klipper said the chain plans to close about 20 stores a year for the next decade. At the end of that time, B&N should have somewhere between 450 and 500 stores.

"You have to adjust your overhead, and get smart with smart systems," Mr. Klipper told the Journal. "Is it what it used to be when you were opening 80 stores a year and dropping stores everywhere? Probably not. It’s different. But every business evolves."

While closing some stores makes sense, according to Mr. Klipper, 97 percent of B&N locations are profitable. He also doesn’t subscribe to the theory that e-books will replace printed works.

B&N also sought to downplay any inference that it was changing its pattern of store closings. In an email to Fast Company, the bookstore chain offered a statement which included the following: "We have historically closed approximately 15 stores per year for the past 10 years. Of that number some of the stores are unprofitable while others are relocations to better properties. The numbers reported today by The Wall Street Journal are consistent with analysts’ expectations. It should be noted that in 2012, Barnes & Noble opened two new prototype stores and in 2013 plans to test several other prototypes, as well. Barnes & Noble has great real estate in prime locations and the company’s management is fully committed to the retail concept for the long term."

What role will physical stores play in Barnes & Noble’s future? Do you believe the store count reductions planned by the company will be sufficient to keep the chain healthy?

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25 Comments on "How Important Are Physical Stores to Barnes & Noble?"

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Richard J. George, Ph.D.
BrainTrust

B&N stores in malls have a chance to survive if they are positioned as a respite from shopping or a social destination (readings, author signings, refreshments). Standalone stores will face the same challenges that sunk other bricks & mortar retailers like Virgin Records, Borders and Circuit City.

Simply because people will still want books in print form does not guarantee the future of B&N. Amazon changed the paradigm for both digital & print. B&N needs to develop its strategy with this fact in mind.

Frank Riso
BrainTrust

I do think that Barnes & Noble are taking the right steps in some store closings. However, I do think that books and the people who prefer them over reading on a mobile device will not go away. Fewer stores and more digital offerings would be the proper balance for B&N.

I recently converted to reading on a mobile device and find myself reading a lot more. I mean a lot more; five books in January alone. B&N needs to learn how to complete with Amazon in the digital world and include books downloaded while in the store at a better discount to drive more traffic to the store, maybe!

Dick Seesel
BrainTrust

Without brick-and-mortar stores, Barnes & Noble doesn’t have a future. There are simply too many other top-of-mind places to buy e-books (Amazon of course, but also Apple) for B&N to keep any sort of meaningful share without a physical footprint.

There is some evidence that bookstores’ business is starting to revive, at least for some independent booksellers. If the only company with a national presence can’t figure out how to compete, who can? And if weeding out some unproductive locations helps B&N survive, it’s a good move.

Max Goldberg
BrainTrust

Physical stores and the Nook are all that B&N have. They cannot compete with Amazon online. Closing unprofitable stores, while opening new prototype stores makes sense. There is a place for book stores and physical books. B&N are doing what they need to do in order to remain viable.

Paul R. Schottmiller
Guest
Paul R. Schottmiller
4 years 8 months ago

The focus on closing 20 stores a year and the subsequent clarification seems relatively “ho hum” and if that is the core of their store strategy it is cause for serious concern.

Digital has and will continue to displace more and more print. B&N’s question today is not how many incremental openings and closings they are going to do, but what are they going to do with their “great real estate in prime locations.”

What they are investing in innovation and the activity around prototype stores are better indicators of their future health and prosperity.

Gene Hoffman
Guest
Gene Hoffman
4 years 8 months ago

B&N’s original business plan relied on physical stores and restful reading environments. Then technology created new “readilogy” experiences for the expanding younger audience. Now we are in a period where the new is capturing the old.

As to the future, it depends upon how B&N can profitably re-utilize its valuable space. That will require innovations not yet uncovered but they will be. Bottom line: Keep calm, B&N, and hang in there until new inspirations come to your mind.

Ian Percy
BrainTrust

Last weekend I was speaking in a community that seemed stuck in the 60s—as you’d guess it was in southern California. Everywhere I looked there were small mom & pop everythings. You name it and there was a small store selling it. I asked my host how on earth they stay in business. “That’s just what we do here,” he said, “everyone shops local.” And sure enough, in every restaurant people were called by their first name. As the stranger I was called “Honey.”

I don’t know what prototypes B&N are considering but I couldn’t help but think of the “You Got Mail” movie where giant book seller Tom Hanks ran up against small local bookstore owner Meg Ryan. I know the economics don’t favor Meg Ryan, but if somehow we could return to ‘familiar’ and less clinical and sterile physical stores we’d have a shot at keeping them alive.

Maybe the pendulum is swinging back to truly personal connection where a real voice greets you by name. Somehow that has more appeal than a “personalized” email telling me what book I’d like next. I can just hear Meg calling my name….

Ken Lonyai
BrainTrust

Physical stores are the only future for B&N. They aren’t as efficient as Amazon for online orders and from what I’ve seen are often a little more expensive for the same books. If memory serves me correctly, they had to match Amazon’s shipping policies to stay competitive. So to think they have much of a market without the stores is a wild supposition.

One thing they offer over Amazon is a presence where people can browse books and get a coffee and scone. For some people, that and the immediacy of purchasing something trumps shopping for the best price from the comfort of home. Still, the NYT ran a story 2-3 years ago about showrooming and they described a real scenario of a pile of books that were examined and then abandoned as the customer ordered from Big A. So, if their store reduction policy has accelerated, I would call that a very telling sign.

Bill Emerson
Guest
Bill Emerson
4 years 8 months ago

At the moment, I’m sure that over half of B&N stores are profitable as there is still a very large percentage of the population that not only prefers physical books, but enjoys the shopping experience as well.

The much larger issue are the demographics. Go into any B&N and look at the average age of the shoppers. Younger readers, as they age into the prime reading group are overwhelmingly going to prefer e-readers. B&N still has a profitable model, but it seems to be on a downward slope. Not a good formula for growth.

Shep Hyken
BrainTrust

As an avid reader and book lover, I hope that the Barnes & Noble physical stores stay viable. But, “hope is not a strategy.” B&N must be smart and diligent about their position. They have a good online and bricks and mortar presence—the latter being the best and biggest in the business. But profitability, even in 97% of their stores, does not mean sustainability. The trend is going the wrong direction.

The traditional book store must evolve to something that consumers will not only visit, but also spend money while there. B&N is navigating tricky waters as they compete with Amazon.com, ebooks (and I agree that ebooks will not completely replace print), other retailers with similar non-book items and the economy.

Debbie Hauss
BrainTrust

It will be difficult for Barnes & Noble or any other book seller to continue to present brick-and-mortar stores in the same way they have in the past. Barnes & Noble will need to continue the process of eliminating unhealthy stores, and possibly cutting back on the square footage of some stores to keep the business healthy.

Although Starbucks stores-within-the-store at Barnes & Noble helps keep people inside the location, and helps increase product sales, the retailer will need to continue to come up with new ideas to attract new in-store customers and retail current customers.

The Nook will continue to play a larger role in overall sales for the company—both in-store and online. On a personal note, I recently chose to purchase a Nook for my 80+-year-old mother instead of a Kindle because I knew she could go to the store to ask for help if she needed it.

This type of service, and new ideas will help the retailer stay alive.

Jamie Birch
Guest
Jamie Birch
4 years 8 months ago

They need to get better at the experience at their bookstores. I feel they can play a huge part in their success and can be a huge differentiator against Amazon. What did the mom and pop bookstores have over Amazon? Not selection. Not price. They had service and knowledge. I read quite a bit, usually 1-2 books per week and I don’t use an ereader.

At times when I want to research/read about a certain topic, and I have no idea what books to look at, I find Amazon, and all online stores’ search engines wanting. Where is my book nut who can tell me what great books to read on a given topic? No one at Amazon will run down a topic for me. But do the customer service reps in the bookstores do any better? Usually not, and I find myself going back home to find something on Amazon, because it may not be the best book for the topic, but it at least will be cheaper and will only take me two days to get.

B&N can get a better foothold by delivering better service and a better environment in its stores.

Ed Rosenbaum
BrainTrust

I am an avid reader. I am also a B&N customer and proud of it. Brick & mortar locations are critical to B&N’s success, both past and future.

Going to a bookstore and browsing is something many people do. How would you know what a book is about or if you would like it without browsing through the pages? Here is B&N’s problem. Once the browsing is complete and the decision to buy is made, the sale is immediate or the purchase is made on Amazon. B&N in many cases has become Amazon’s showroom. How to compete with Amazon becomes the issue B&N must resolve. It is not going to be simple. But they have to do it to survive.

Amazon stands to lose significant revenue if B&N does not survive. It would be in their best business interest to insure they make it.

W. Frank Dell II
BrainTrust

When something new comes on the scene, there are always people who think the old will just disappear. Guess what? Buggy whips are still being made. There will be people that want things in print. Not everyone has an iPad, nor does everyone want one.

B&N needs to rethink the store. Add things like on-demand print, or out of print books, etc.

Ted Hurlbut
Guest
Ted Hurlbut
4 years 8 months ago
Observing the B&N stores evolve over the last 5 years has been to watch them trying to hold back the tides. Square footage devoted to books has declined significantly, to be replaced by (higher margin but no return privilege) categories that may not generate any more sales per square foot, but certainly require less of an inventory investment. Feature presentations of new and bestseller titles have been scaled back, as has the depth of those presentations that do remain. CDs and DVDs have been hollowed out as sales in those categories have evaporated. They are certainly trying, but when you ask yourself what the revenue drivers are, and where sales growth might be coming from, it’s clear that the tides have been winning, up to this point. They’ve tried to gain traction with e-commerce and the Nook, but they are clearly market followers, not leaders in those things. It’s stores, or bust. They are in much the same situation as Best Buy. Be as efficient as you can possibly be, and manage cash flow assiduously. Focus on your book-loving customer base, working to strengthen and deepen those relationships. Test, test, test, as you continue to seek out a sustainable long-term… Read more »
Nikki Baird
BrainTrust

I agree that B&N needs to get better at the experience in the store. And it may be as radical as creating a space where selling physical books isn’t the primary objective. Fewer, larger stores, with community and event spaces, maybe partnering with tutoring services, school organizations, whatever it takes to drive traffic. And Nook services—which they have already made some changes in that direction. But “bookseller”? That’s a tough one. Whether people continue to read physical books or not, they don’t need to drive to a store to get them. So B&N better come up with some other compelling reason to get people to go there.

Lee Peterson
BrainTrust

Mr. Klipper’s right; not everyone likes an ebook, not even Millennials in some cases. There will always be a market for real books, and B&N is the sole player left out there, so it does not surprise me that they’re profitable.

For a little history, just look at what happened to record stores—let’s say Newbury Street in Boston, as a microcosm of that industry’s plight. All music went on line, but what happened on Newbury Street? Tower is gone, Virgin is gone, but Newbury Comics (who sells music) is still there. Why? The avid or devoted music lover lives to see “special” choices, loves to touch the product, see the posters, TALK TO PEOPLE…you know, experience the music, not just have it shipped to their house. Newbury’s doing gang-buster business.

Given that history and many more studies like it, if B&N appeals to the true book lover and manages to that smaller number in every way (including product), they’re going to be just fine.

David Slavick
Guest
David Slavick
4 years 8 months ago

Ahhh…nostalgia. Sitting down and reading a good book, listening to pleasant music and sipping on a Starbucks coffee. I could do that at home, or at my favorite B&N. Personally I love the physical store and experiencing the community that is information lovers.

The future; its going to be a rough ride. At one point, B&N spun off their e-commerce as a separate business. Their real estate strategy and store design plans are brilliant in shaping the store exterior to the community it serves. Contraction on the basis of profit per square foot is inevitable.

Bill Bittner
Guest
Bill Bittner
4 years 8 months ago

I don’t think B&N is going to make it. I used to enjoy visiting our local store, browsing the various sections, listening to visiting authors, or just getting out of the house for a few hours. Occasionally I would buy something. Now I order most of my books, audio, and video online and my local library has added a vending machine area. If I want to get out of the house I simply visit the library.

I think one of the big challenges businesses face in today’s world is that it is no longer sufficient to be “great” in a limited number of disciplines. As automation has made it easier for companies to eliminate middle management in their vertical structure, the flattened structure has encouraged them to break out into different areas on the horizontal. Thus you see a book distributor like Amazon buying a robot manufacturer, branching out into a wide variety of product categories, and becoming an Internet services expert. There are no more one-trick ponies.

Craig Sundstrom
Guest

Paul beat me to the big “uh-oh!”: “closing ‘underperforming’ stores” is one of those auto-pilot strategies you could pull from a book you see on the $1 clearance table, so I’m not impressed.

But of course B&N’s problems are a bit unique; unlike food or cars, no one can say with certainty that the product (i.e. books) has a future; the world may go to e-books, or skip that entirely and regress to tweeted semi-literacy. So maybe they need to consider something else, and become the place where you buy your Prius…and pick up a carton of Twinkies along with it.

Anne Bieler
Guest
Anne Bieler
4 years 8 months ago

B&N needs more to keep stores profitable. Readers like and shop at bookstores, but B&N is going to have to work at making it a destination at the mall. Books can be hard to find there, kiosks could be more helpful, and online and in-store need to be more integrated. The experience will have to become more compelling to overcome competitive channels and growing preferences for e-books.

Kai Clarke
BrainTrust

Why would anyone keep underperforming stores open? Of course this should be done. And B&N should continue to test a better online model, so that they can bring back their customers who are defecting to Amazon. Wake up and smell the coffee B&N! The world is changing and your model needs to either adapt or perish.

Phil Wells
Guest
Phil Wells
4 years 8 months ago

I saw an interesting story some time back about how some coffee stores were putting in high quality printers and printing books ‘as you wait’. Maybe B&N could do the same.

(Amazon already prints many of their lower selling books at their warehouses in this manner).

B & N could ensure they have a Starbucks and a food outlet on site. If they then had a couple of dozen sit-down terminals for viewing eBooks, you could search the B&N catalog for likely books, review them electronically and then place your order while you had a coffee. Finish your coffee and pick up your book….

That would give them a model to fight against Amazon with.

Alexander Rink
BrainTrust
4 years 8 months ago

I believe that physical stores will play (or at least should play) a large part in B&N’s future. According to the article “Why online book discovery is broken“, book buyers are much more likely to discover books that they eventually purchase in actual bookstores, and books are one of the items that get “showroomed” quite often. Apparently, and not surprisingly for those of us—like me—who enjoy the experience of strolling through a bookstore, many people apparently enjoy the book-store experience, but end up purchasing online for the better prices and convenience. As mentioned in the article, publishers may want to consider assisting brick and mortar bookstores given the propensity of readers to discover their products in them.

Mark Price
BrainTrust

As the penetration of iPads continues to increase, more and more consumers are seeking out books that can be read online. In that type of environment, the question is “how can my store help my digital experience” – rather than vice versa.

In this sort of environment, it is critical to ask the question “what is the role of the physical store in the first place?” When consumers prefer on-line books, the store’s role is that of a showroom (in books even more than electronics). The store will display books, showcase content, help consumers find new books and categories to read, etc.

If the retail book experience is not inextricably linked to the online experience, then the retail store will suffer as the business goes elsewhere. But when they are connected and complement each other (go to the site to see this author’s talk last week), then the business can be store’s online portal, earning the store a share of the profits.

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