Chairman Recognizes Value in Barnes & Noble, Inc. (BKS)

Page 1 of 2

Happiest of happy days! Barnes & Noble, Inc. (NYSE:BKS)‘s chairman, Leo Riggio, has announced that he plans to buy out the company’s retail business, leaving the Nook segment behind. Finally the day has come when the books are separated from the technology and both end up doing better — or that’s the hope, at least. Riggio already owns 30% of the company and is the effective founder of the current company. While he bought the name and one bookstore in the 1970s, it was his vision that allowed the company to grow to the size it is today.

Barnes & Noble, Inc. (NYSE:BKS)The biggest issue the company has had recently revolves around that size. While Barnes & Noble, Inc. (NYSE:BKS) has a market cap of $875 million, the Nook business that operates within the company has been valued as high as $1.7 billion, recently. Both Microsoft Corporation (NASDAQ:MSFT) and the publisher Pearson PLC (ADR) (NYSE:PSO) have purchased a stake in the Nook business, injecting almost $700 million into the e-reader. If Riggio manages to peel away the retail business, what will that mean for the Nook and for investors?

Why would you buy a bookstore?
One of the biggest misconceptions surrounding Barnes & Noble has to be the idea that the bookstore is dead. The never-ending comparisons with Borders and Amazon.com, Inc. (NASDAQ:AMZN) only muddy the water and make it harder to see what’s really happening. Here are the facts. In the last reported quarter, comparable sales excluding the Nook were up 2%. In addition, the retail segment was the only division to turn in an operating profit last quarter, although it was a weak 3%. That’s because, for all the Nook hoopla, sales at Barnes & Noble are still more than 60% physical — books, magazines, and movies.

Borders fell apart for lots of reasons, but an autopsy from Retail Management Consultants hit on some of the biggest problems. First and foremost, the company didn’t hire the right people. Second, it ignored customers’ wishes. Finally, it failed to localize the chain, making decisions that took DVDs and music out of all locations regardless of how profitable the locales were. That’s not the boat Barnes & Noble is in. Just last year, Barnes & Noble topped a customer satisfaction poll for online book retailers.

The second comparison, with Amazon, is more troublesome. Certainly, Amazon and Barnes & Noble compete to sell people books, but what most people overlook is that Amazon isn’t a bookseller anymore. It used to be a bookseller, but now it’s an everything-seller. Barnes & Noble competes with it by default, but Amazon is no longer focused on selling you books. Instead, it wants to sell you search capabilities, storage, or devices. Here’s a challenge for you — find an article explaining why Amazon is a great company that rests on the premise that it dominates the book industry. I doubt that such as article exists.

An opening for more
That lack of focus from Amazon means Barnes & Noble can compete if it refocuses on being a bookstore. The Nook has sucked down capital and ingenuity and has left the physical locations out in the cold. The whole store was redesigned to move the Nook up to the front. But the Nook was never going to be the savior of Barnes & Noble. Books were. If Riggio takes the company back, he can focus on playing to its strengths and taking advantage of its dominant market position.

There are no other meaningful chain booksellers right now. If you want to buy a book from a store, you’re probably headed to a local place or to a Barnes & Noble. Traffic has increased in-store with the collapse of Borders, and that means the company has plenty of opportunities to make new sales and build new customer relationships.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Biggest Airports in the World

The 5 Most Gang Infested Cities In America

The 34 Smartest Countries in the World

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!