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

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

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!