WSJ: Investors Are Freaking Out About Barnes & Noble

[MV64]

Agreed, abookreader. People in their 60s are using technology. The "old people hate technology" line was relevant 10 years ago, but not anymore. In fact, most of the people I run into who refuse to get a computer are in their 40s and paranoid about the government tracking them.

[Xanthe]

Damn. I better spend all those B&N gift certificates that I have, so I don't lose them like I did my Borders ones.

[kennyc]

Originally Posted by Xanthe

Damn. I better spend all those B&N gift certificates that I have, so I don't lose them like I did my Borders ones.

Yep!



.

[fjtorres]

Originally Posted by Fbone

If the US market peaked already, that will drive down hardware prices to crazy levels.

Yes. But only if the vendor's been caught flat-footed and needs to clear the inventory fast.
And that appears to be exactly what has happened to B&N. ($49 refurb STRs? Wait a few weeks.)

Amazon? Nobody knows. And this may be *exactly* the reason why they've been careful never to specify just how good good is, when it comes to Kindle. Still, if we start seeing ever-lower refurb deals on a weeky basis at the Amazon Warehouse...

The thing is, if the US eink reader market plateaus now, Amazon has the UK and its other international markets (France, Spain, Italy, with Brazil coming up soon) to bleed off the surplus inventory. B&N doesn't have that option.

All the clues have been in place for three months now.
And the likely outcome is looking decidedly dangerous.

[fjtorres]

Originally Posted by Xanthe

Damn. I better spend all those B&N gift certificates that I have, so I don't lose them like I did my Borders ones.

Now, now.
Let's not get carried away here.

B&N is supposed to have about $150 Million left from their Liberty Media loan.
So even in the worst-case, minus-$100 million scenario, they won't be immediately bankrupt. And Nook is something Borders never had; a spinoff+plus IPO can generate enough cash to float the boat for at least another year.
They're not insolvent.

But they *will* be living paycheck-to-paycheck like most of us.
The biggest problem they face is they have just FUD-ded themselves and effectively frozen the market for Nooks (and possibly *all* epub eink readers) until the other shoe hits the ground.

If you have gift cards and find something you need, then use them. But don't waste them on stuff you don't need just yet.

Don't. Panic!

[SeaKing]

Originally Posted by fjtorres

Good point.
The dept store/pharmacy/supermarket book depts *are* Kiosk businesses; but instead of free-standing in malls, they are based inside the multipurpose business. That sell commodities rather than specialty goods.

Hmm, that needs some thinking on.
"Bestsellers" are supposed to be traffic draws but if they're available everywhere doesn't each title become a commodity unto itself? If you're going to buy the newest Patterson book, it doesn't matter much *where* you get it; you get it the first place you find it at a good-enough price. That is commodity-like...
Something to chew on for later.

As to the predator thing: markets aren't neatly bounded like fish tanks. They overlap and overflow, they grow and shrink... They change.
When a "predator" outgrows its environment or its environment shrinks, it can and should look for new hunting grounds. Sometimes it even means abandoning its original niche instead of expanding it.
Survival comes first, second, and last.

I threw that predator thing in thinking about big book stores swallowing little book stores until finally there was only one. Sounds like that movie with the line "there can only be one."
Anyway, sure the big fish has grown and there are not really any good sized fishes to eat but it can subsist on plankton, algae, kelp and such as well as the little tiny winy fish (minnows like individual customers) that it has to expend a great deal of energy chasing.
Then all of a sudden those damn fishing birds start diving into the water and grabbing the larger little minnows, and those bears and people with hooks and fish spears start grabbing the little minnows and they aren't afraid of taking a big predator fish either. It can be tough out there in the wild, and it takes a while for a big predator fish to evolve wings, or legs to walk on the ground.

How is that for an ecosystem. (Next we will bring in army ants, and alligators!)

[fjtorres]

Originally Posted by SeaKing

I threw that predator thing in thinking about big book stores swallowing little book stores until finally there was only one. Sounds like that movie with the line "there can only be one."
Anyway, sure the big fish has grown and there are not really any good sized fishes to eat but it can subsist on plankton, algae, kelp and such as well as the little tiny winy fish (minnows like individual customers) that it has to expend a great deal of energy chasing.
Then all of a sudden those damn fishing birds start diving into the water and grabbing the larger little minnows, and those bears and people with hooks and fish spears start grabbing the little minnows and they aren't afraid of taking a big predator fish either. It can be tough out there in the wild, and it takes a while for a big predator fish to evolve wings, or legs to walk on the ground.

How is that for an ecosystem. (Next we will bring in army ants, and alligators!)

As long as there are no head-chopping scots running around it should be safe enough here.

If we're talking ecosystem adaptation, there's the aussie shark story from last week: with the changing water temps, two close-kin shark variants have been hybridizing.

For B&N, hybridizing might be reducing book floorspace and selling other products, just as other retailers are encroaching on their food supply.

[Phogg]

Originally Posted by fjtorres

As long as there are no head-chopping scots running around it should be safe enough here.

If we're talking ecosystem adaptation, there's the aussie shark story from last week: with the changing water temps, two close-kin shark variants have been hybridizing.

For B&N, hybridizing might be reducing book floorspace and selling other products, just as other retailers are encroaching on their food supply.

What if they aren't running?

[Scott Nicholson]

BN has been in a woeful and fundamental state of delusion for two years. Under that type of "leadership," there is no chance of adequately responding to dramatic challenges.

[Fbone]

B&N same store sales up 2.5% and the doomed analysis by brokers and public causes stock to drop 17%.

Best Buy same store sales drop 1.2% and analysts happy because BB sales were only slightly worse than expected bringing stock price up 3%.

Difference is BB is still profitable. Markup on mobile phones, tablets, appliances, ereaders and movies saved them.

[fjtorres]

Best Buy is in an entirely different competitive position than B&N.
They too have been bleeding business to online (and not just Amazon) but a lot of their problems are just that their core business is discretionary-spending items. The new penny-pinching "normal" is not helpful to them.

But they did about as expected and one of their few national B&M competitors (Sears) is going to be trimming back.
They are also moving to make *their* online more competitive and they've cut back their money-losing foray outside the US.
Unless they have a dismay Super Bowl TV-selling season, they'll be in better shape this year than last. No great but not worsening.
Stock pricing being forward-looking, BB gets a minor boost.

*Their* clouds just aren't as dark as B&N's right now.
And that is a change.

[markbot]

Originally Posted by Fbone

B&N same store sales up 2.5% and the doomed analysis by brokers and public causes stock to drop 17%.

Best Buy same store sales drop 1.2% and analysts happy because BB sales were only slightly worse than expected bringing stock price up 3%.

Difference is BB is still profitable. Markup on mobile phones, tablets, appliances, ereaders and movies saved them.

also, i think that same store sales were up for B&N but a lot of that is because of the borders bankruptcy. so perhaps, analysts thought it would do better. the other issue is that they warned that the ereader fell short of expectations and the nook business still isn't profitable despite being highly successful in terms of market share in the US. when does it become profitable? the other thing is that the same store sales are up because the nook sales are up, partly. but how is the core non-nook biz doing, excluding the borders bankruptcy effect?

amazon can scale the kindle globally, whereas B&N cannot. amazon can take losses on the kindle by cross selling a lot of other products. B&N cannot. amazon is a tech company. it is their dna. B&N is not.

if the nook fails, B&N is in trouble (unless they sell it for a nice price, which is what they might do). if the nook succeeds, B&N's stores are likely in trouble because of the shift to ebooks. so, actually selling the nook at a fair price and doing commercial agreements makes some sense in that it gets out of this lose-lose situation. the nook also requires a lot of advertising and tech investment, which B&N might not be able to afford....

[markbot]

the obvious buyer/partner for the nook is google. google is about to do their own tablets (they are buying motorola mobility). they could make the nook their 7" tablet or a flavor of their 7" tablet lineup. they could have a 10" tablet which they could integrate with content from B&N. B&N could be a show room for some google tablet products. google has their own online book store which they could cobrand with B&N. that makes some sense. google could integrate the nook into its overall mobile strategy better and they have deeper pockets to compete. google is a tech company, B&N isn't. but B&N has that relationship with the customer and a brand that is valuable and physical stores. it could become a fruitful relationship. tablets are strategically important for google so they may be able to pay the most for the nook.

but google will be thinking that they could buy the nook for $700M+, or whatever the price is, or they could just try to build that business themselves or integrate it with the overall tablet strategy. u can buy a lot of advertising with $700M.

those are some thoughts.

[SensualPoet]

Originally Posted by CJJ

Brick and mortar mind-think is B&N's nemesis. Of course they thought they'd sell more. Labor is a killer in these establishments and they were manning the Nook displays 14 to 16 hours a day through the holidays. I'm sure the expectations on the store managers was ludicrous. This had bad synergy all over it from the beginning. I wish a B&N sales associate would post some of the sales planning literature handed out before the holidays. They are always fun reads.

The way B&N allocates costs to the Nook business can be instructive. In your example, all the selling costs -- sales staff manning the Nook booth, the floorspace rental for the Nook booth, the construction of the booth -- are borne by the consumer retail division of B&N. The store gets a margin only from selling each device (as if it were any other inventory item like a hard cover, CD or toy).

In effect, Nook is not bearing the true cost of selling the device in its own stores (something which is not true when it sells through Best Buy, for example, a company that charges vendors to appear in flyers, for any premium shelf space, for in-store displays (like demo units) and, depending on the product, bonuses for sales teams hitting targets). In essence, B&N consumer retail is subsidising the Nook business in a further financial way not reflected in the already money-pit which is the Nook division.

[fjtorres]

Originally Posted by SensualPoet

The store gets a margin only from selling each device (as if it were any other inventory item like a hard cover, CD or toy).

That *is* how it is sold in the partner outlets, no?
And it appears to be the way Amazon bookkeeps Kindle.

As a rule, retailers' overhead covers the cost of stocking and selling a product, unless they're receiving co-marketting or rebate funding. It makes sense to treat Nook as a separate product if it is to be a self-sustaining business at some point.

What I don't quite get is how, at 29% of the ebook market and $1.5 billion a year in sales, Nook could *not* be standalone profitable. At that scale, development and customer support costs should be practically noise and while hardware margins are clearly thin the content margins are plenty healthy. So, where the losses?
Nook is supposed to be in the same general league as Kindle and a cut above Kobo and Sony, among the high-visibility players, and Kindle is by all accounts self-sustaining. Unless their margins on their retail-partner sales are unusual, their hardware losses should be offset by their ebook profits with plenty left over.
The only three ways I can see Nook as a money-losing proposition at this point is if:
- Their Nook hardware costs are way higher than Amazon's
- Their customers are getting their ebooks from places *other* than their ebookstore
- Their back-end/overhead is eating them up alive

Considering their aggressive hardware pricing over the last 18 months it would be the height of folly to be *forcing* a race to the bottom on hardware prices if either of those three were true, no?

I'd hate to think they were pursuing a Palm-style "market-share at any cost" campaign, considering their shallow pockets.