No Quick Fix for B&N

After disappointing holiday sales were followed by a round of layoffs in February, Barnes & Noble said last week that it is implementing a new “long-term strategic plan” aimed at increasing customer satisfaction and improving profitability. The plan was unveiled as B&N reported that third-quarter sales (for the period that ended January 27) fell 5.3% from the third quarter of fiscal 2017, to $1.23 billion. Same-store sales in the quarter were down 5.8%.

The company also reported a net loss of $63.5 million, compared to net income of $70.3 million in the same period a year ago. The loss in the quarter includes a goodwill impairment charge of $133.6 million and a severance charge of $10.7 million.

In outlining the new strategic plan during a conference call with investors, CEO Demos Parneros warned that B&N “requires a significant multiyear transformation” to meet its long-term goals. In the short term, he said, the retailer is “focused on stabilizing sales, improving productivity, and reducing expenses.” B&N’s new strategic plan involves four elements: strengthening the core business by enhancing the customer value proposition, improving profitability through an aggressive expense-management program, accelerating execution by simplifying its processes, and innovating for the future.

Parneros said B&N will continue its strategy to put its focus back on the sale of books. In the third quarter, the retailer’s book sales outperformed the company as a whole, but they still fell 4.1%. B&N’s weakest performance was in nonbook categories such as music and DVDs. Parneros said the company will cut back those sections and give a makeover to its gift and stationery offerings.

Parneros added that, though implementing the layoffs was “difficult,” it was a necessary step to give the retailer the flexibility to switch its booksellers’ focus from doing back-office tasks to spending more time with customers. He said that among B&N’s strengths are the “expertise of its booksellers” and its book assortment. The company will continue to look for more cost savings in areas such as logistics and procurement.

Another part of B&N’s turnaround plan is the opening of five new prototype stores in fiscal 2019, which begins in May. The new stores will be about 14,000 sq. ft. each, roughly 12,000 sq. ft. smaller than the current typical B&N store. “26,000 sq. ft. is too big,” Parneros told PW. “Those stores were built a long time ago.”

The prototypes will be focused on books but will include cafés and assortments of nonbook items, Parneros said. The first store will open in late summer in Hackensack, N.J., with additional sites still to be determined.

B&N recently opened the last of five stores that feature small restaurants. Parneros said book sales at the “kitchen stores” performed about the same as at its traditional stores, and that there are no plans to open more of those outlets.

Another part of the plan is to strengthen the connection between the physical stores and BN.com. Parneros has been pleased with B&N’s six-month-old ship-from-store program, through which online orders are fulfilled by stores. The company will soon offer customers the option of buying and paying for books online and then picking them up in their local stores within an hour.

Sales at BN.com fell about 5% in the quarter, but Parneros said B&N didn’t put a lot of marketing muscle behind the online option as it worked to stabilize the physical stores. He views BN.com as a giant catalogue that can help customers learn what is available from the retailer.

Barnes & Noble Segment Results

Third Quarter Fiscal 2017–2018 ($ in millions)