Can Barnes & Noble Stage a Comeback?
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The world is changing with each passing day and so are the needs and preferences of consumers. There has been a dynamic shift from television sets to personal computers and then to laptops. The next shift, which is the growing preference towards smart phones and tablets, has been quite an impressive one since that has had a great impact on the traditional retailers.
I had recently discussed about the electronics retailer, Best Buy (NYSE: BBY), which had fallen prey to this transition. The decreasing sales of television and computers have had an unfavorable impact on the retailer. Moreover, online retailers such as Amazon (NASDAQ: AMZN) have also been detrimental to Best Buy’s prospects because of its competitive pricing and innovative products. Moreover, convenience has played an important role for the online ones.
Yet another One…
But this is not the only industry which has been affected by the growth of Amazon. Another very important industry well captured by Amazon is the e-book industry. The online giant’s presence in this sector has given a huge blow to the traditional bookstores since consumers find it very easy to read books online on their mobile devices rather than visiting a bookstore or carrying a book.
A typical example here is Barnes & Noble (NYSE: BKS) which has been witnessing difficult days because of the death of consumers’ interests in bookstores. Nonetheless, the company has been managing it quite well as reflected in its recent first quarter results. With an increase of 2.5% in the top line, the retailer managed to reduce its loss to $41 million from $56.6 million last year. Hence, the results came in as a respite after a long struggle. But let us first take a look at the challenges faced.
The Fallouts…
Barnes & Noble had been losing footfall in its stores since people are not as interested in going to bookstores and buying books like they used to be. Moreover, the huge costs involved in running a bookstore have been affecting the book seller largely. On the other hand, Amazon with its online presence offered everything at a click of a mouse (or rather, a touch of the screen).
However, the retailer tried to overcome this problem by releasing the e-book reader known as Nook in order to compete with the latest devices offered in the market such as Amazon’s Kindle. But succeeding in the already dominated market is quite a difficult task since players such as Apple, Google and Amazon are already in the lead with large market presence.
Moreover, the company is on a very small scale without much international presence. Hence, in order to have a strong foothold it needs to expand its presence internationally.
Strengths to Ponder
Till now the company might look like a lost one with no hopes of survival because of its outdated business model. But every coin has two sides. A very valid point to think about is the survival of this company. If at all there was nothing to look forward to then it would have been lost like its peer Borders which could not manage the shift. This point was very much validated by its improved first quarter performance which beat the market’s expectations.
Driven by great performance in the digital content segment revenue for the quarter rose 2.5%, clocking in at $1.5 billion. Barnes witnessed a sweet quarter since all its segments did well. It benefitted largely from the exit of its rival Borders. Moreover, great footfall in its bookstores attracted by the “Fifty Shades of Grey” series enabled the book seller to have good volumes.
Even the digital device Nook performed well but the same was reflected less on the revenue number since Barnes sold it at a lower price as compared to last year. However, the product attracted attention pushing up volumes. This is expected to be healthier since the company plans to further reduce the price by $20. This will make it heavily competitive against Amazon’s Kindle Fire which is currently available at the same price.
Barnes & Noble’s strategic efforts seem to be endless. It has started working on its international footprint and plans to launch Nook in the United Kingdom giving stiff competition to its rival Amazon which is already present there. Additionally, it plans to have an online store for Nook and launch a number of new products in the coming months which make me look forward to its potential results.
Another potential strength in Barnes’ kitty is the recent investment agreement with Microsoft (NASDAQ: MSFT). The partnership with Microsoft to form a new company, Newco, with Barnes’ digital and college segments also comes as a positive sign. The popularity and large market presence of Microsoft can prove to be a huge success for the book seller.
Bottom Line
Though the company has been on the losing side for some time, its continuous efforts to change with consumer demands are commendable. The retailer’s moves have started showing improvement in its results. Strong cost cutting contributed to the bottom line as well. Its first move in international markets and new product launches are things to be watched. However, the biggest event eyed by investors will be the collaboration with Microsoft which can prove to be the strongest weapon in its arsenal. These points surely make me look forward to the company’s performance.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com, Best Buy, and Microsoft. Motley Fool newsletter services recommend Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
