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Should We Care About Barnes & Noble, Inc. (BKS)’s Survival?

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Once upon a time, the book superstore elicited two major responses. One: I’m in heaven; here are more books I’ve ever seen in one place, ever! Two: This is hell on independent bookstores; it’s a sad time indeed.

Barnes & Noble, Inc. (NYSE:BKS)

Today, everything’s come full circle. Borders failed, and even though one huge rival was wiped off the map, Barnes & Noble, Inc. (NYSE:BKS) is showing serious signs of losing to its aggressive competition.

Some investors may be studying Barnes & Noble, Inc. (NYSE:BKS) as a value play, but they’d better think twice. Not only is the bookstore chain in big trouble, but if it fades from the scene, maybe in the long run, nobody would even really care.

Full circle
This is a story of more than a decade of disruptive change. It illustrates the economic theme of creative destruction, as painful as that may be.

Amazon.com, Inc. (NASDAQ:AMZN)‘s arrival on the scene was a major harbinger of the change to come. Recall that back in the old days, the idea that books and music would sell over the Internet was by no means a foregone conclusion. E-commerce was in its infancy. The tech bubble wiped out many early dot-com companies, even some that were good ideas but ahead of their time.

We now know that Amazon.com, Inc. (NASDAQ:AMZN) not only survived, but it’s ingratiated itself into the fabric of many consumers’ lives. It’s so much more than an online book and superstore; its model started weakening bookselling chains Borders and Barnes & Noble, Inc. (NYSE:BKS) long ago. Amazon.com, Inc. (NASDAQ:AMZN)’s ability to track down just about anything and send it straight to your door was the next evolutionary step that spelled the beginning of the end.

Don’t buy into this cliffhanger
Today, Barnes & Noble, Inc. (NYSE:BKS) is losing traction, big time. The bookstore chain’s most recent quarter revealed a staggering loss, a plunge in sales, and a prediction for falling same-store sales in fiscal 2013. Its quarterly net loss was a whopping $118.6 million, or $2.31 per share. Sales dropped 7% to $1.28 billion, and same-store sales plunged by 8.8%.

In more negative news, the retailer is retreating from the tablet business in a time when technology really matters. For ages, its Nook was holding its own against Amazon’s Kindle e-reader and tablet lines. Now, Nook sales are falling while Kindle sales are growing. In its most recent quarter, Barnes & Noble, Inc. (NYSE:BKS)’s digital sales also dropped by 9%. It will still sell its basic Nook e-reader, but its decision to get out of the tablet business admits to defeat compared to Amazon’s Kindle Fire and tablets from Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT).

Those factors are bad enough. However, there’s an even more ominous theory circulating, as reported by The Wall Street Journal: that Barnes & Noble has been slowly putting more emphasis on selling odds and ends than actual books. Browse any Barnes & Noble and you’ll see toys, games, journals, and an array of things that don’t really relate to the act of reading. Rumor on the street is that publishers are having a harder time getting to Barnes & Noble’s shelves, and the retailer is increasingly peddling high-margin merchandise that’s more gift shop than book shop.

Although Barnes & Noble denies the allegations, the Journal‘s chats with those in the industry have revealed indications of some reduced orders of books and less varied assortments.

I predicted Borders’ doom, and I’m afraid Barnes & Noble is on the same road. The fiscal year ended May 1, 2010, was the last time Barnes & Noble generated an annual profit. Revenue growth has decelerated over the past several years, and as of the year ended April 27, the company’s total revenue fell by 4.1%.

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