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Monday, August 26, 2013

How Much Longer Can Barnes & Noble Hold Out

It's hard  to believe it's been two and a half years since Borders drowned in Chapter 11. You'd would have thought Barnes & Noble would have learned from the death of what had been their biggest rival for a couple of decades.

And in some ways B&N did. They saw what Amazon was doing to gain market share. They jumped into the device market with the introduction of the NOOK. They opened up their e-book store to indie writers. But they did nothing to alleviate the crushing overhead of brick-and-mortar stores.

Sales of paper books went down or stagnated, depending in which source you take as gospel. Even as their archrival fought to keep its head above the rising tide of debt, B&N reduced their movie selection and eliminated music entirely. They expanded that previous media space and installed a mini-toy store instead. In the front of the store, a gigantic NOOK display blocked the sight of the books. Where the NOOKs hadn't invaded, home furnishings, kitchen knick-knacks, and Vera Bradley dominated.

So why didn't these changes save B&N?

They forgot their primary mission--customer service.

Clerks would refuse to order books that the stores did not carry, or they would lose the order. The B&N website has not improved its search criteria or any other functionality in the last three years. Attempts to contact the company regarding problems are often met with a resounding silence.

The toys were not necessarily a bad idea, but pricing them 30-50% above other retailers like Target and Walmart was.

On the NOOK side, they didn't fulfill their promise of additional content for their tablets. Customers only had access to e-books and a few cheesy apps. No movies, TV, music or decent games. So customer started rooting their tablets in order to use them with other vendors. B&N retaliated by locking the devices in such a way that if a customer tried to root her device, she ended up with a paper weight.

Then there's the issue with vendors. B&N got into a pissing contest with Simon and Schuster over payment of front table and end cap placement prices that lasted six months. Some indie writers are missing payments as far back as May.

Rather than take a hard look at business practices and improve them, the B&N board fired CEO William Lynch last month. CFO Michael Huseby now runs the company. I'm sorry but beancounters rarely have the vision to pull a company out of a tailspin.

Chairman Len Riggio filed with the Securities and Exchange Commission that he planned to buy out B&N's shares of the retail stores and take the company private.

Fourth quarter losses in the NOOK division prompted the company to state last month that it was withdrawing from the tablet market. They've been mum about whether the e-book section will follow NOOK or stay with the bookstore division should they find a buyer for the NOOK. And frankly, no other tech company wants to touch NOOK with the proverbial 10-ft. pole.

A couple weeks after the fourth quarter announcement, losses went even higher due to extra taxes on an accounting "mistake."

In August, management reversed the policy changes stated in July. NOOK devices will still be manufactured. Riggio has withdrawn his offer for the retail stores.

And in the midst of the chaos, bugs in Nook Press, the upload interface that replaced PubIt in July, has caused a wealth of suspicion in the indie writer community. Sales appear and disappear. Real-time updates have been a joke. Writers are concerned they are seeing the same types of fuzzy accounting that trad publishers are notorious for. Many are biting their nails, waiting to see if August payments hit their bank accounts.

Can B&N get their shit together?

Not at the rate they are going. The big question? How long can their bloated plane glide before it crashes.

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