B&N Gets Ready For Its Next Act

With a relatively good holiday season behind him, Barnes & Noble CEO Ron Boire is poised to accelerate the rate of change at the country’s largest physical bookstore chain. Among Boire’s priorities are rightsizing the Nook business, overhauling the consumer e-commerce experience, finding more operating efficiencies throughout the supply chain, and opening four new concept stores by next April, the end of fiscal 2017.

The priorities reflect some of the problems B&N still needs to overcome, as seen in its fiscal third-quarter results (for the period ended Jan. 30, 2016), in which total sales fell 1.8% compared to last year’s third quarter, but profits rose. Though B&N has significantly cut losses in its Nook segment, including in the third quarter, the division lost almost $50 million in the first nine months of fiscal 2016. In a conference call discussing third-quarter results and in an interview with PW, Boire, who took over as CEO last September, and other B&N executives said the company is exploring all options to lower Nook’s costs. Concrete steps that B&N has already taken are exiting the e-book business in the U.K. and closing the Nook app and video businesses. Boire said that although B&N is still committed to selling digital content, Nook’s operating structure needs to be significantly reduced. In the third quarter, Nook sales fell 33.3% as sales of hardware declined 44% and content sales dropped 23%. When B&N finds the correct size for Nook, “we will pivot to see what the right growth strategy will be,” Boire said.

Sales through B&N’s retail stores dipped 1.2% in the quarter, and the loss was attributed to store closures and declining sales at bn.com. The relaunch of the site last summer did not go well, forcing the company to fix numerous glitches and causing a drop in online sales. Despite improvements made since the fall, Chief Digital Officer Fred Argir said the site is being redesigned again with the goal of completely overhauling the shopping experience. “The entire journey on the site will be rearranged,” Argir said. One of the goals of the redesign will be to make bn.com more mobile friendly—nearly half of the traffic to the site in the third quarter came from mobile devices, Argir noted.

Cost cuts are not just coming at the Nook unit. B&N has hired Accenture to find ways to reduce expenses throughout the supply chain, without disrupting the business. The company has set a target of reducing SG&A costs (selling, general, and administrative costs) by $30 million in fiscal 2017.

Boire did not provide too many details about the new concept stores, noting only that B&N will open four outlets through fiscal 2017, with the first store set to be opened by late summer. B&N is spending about $2 million to open each store. With the opening of four concept stores in fiscal 2017, B&N expects the net reduction in stores to be 10. It will close eight stores this year, its lowest number since 2000.

The biggest sales gains in the third quarter came from nonbook products such as toys and games, gifts, and vinyl music, which all had double-digit increases in the quarter, though sales of adult coloring books were also strong in the period. Sales of adult trade and juvenile titles fell in the period. Overall, comparable store sales at B&N rose 0.2% in the quarter, but excluding Nook products comps were up 1.3%.

Though B&N will continue to tweak its nonbook offerings, Boire said books are “the soul of the company and always will be, both in the stores and online.” Jamie Carey, chief operating officer, said he thinks the inventory mix at the stores is “about right” and noted that one of the merchandising initiatives for the year will be to make sure “the very best books are brought forward.”

Barnes & Noble Inc. Segment results, Third quarter, Fiscal 2015 v. 2016 ($ in millions)

Source: Barnes & Noble