The theme of Barnes & Noble.com's year-end filing with the Securities and Exchange Commission was reducing costs. As part of that drive, the e-retailer has given up space in its Reno, Nev., warehouse after determining it could not "fully utilize" the facility. Since 2000, when the company signed a 10-year lease to use the warehouse, it has subleased about 50% of the space to Barnes & Noble. Earlier this year, B&N agreed to assume all financial responsibility for the warehouse. As part of the deal, all BN.com employees have become B&N employees, and B&N paid BN.com $10 million for existing inventory. In addition, BN.com will pay 50% of the rent, $1.6 million, on the warehouse for 2002.

Kevin Frain, CFO for BN.com, explained that when the company signed the Reno lease, it overestimated what its sales volume would be by 2002. With a warehouse in Memphis, BN.com's sales volume "couldn't support a second warehouse," Frain said, adding that with the transfer to B&N, the e-retailer is out from under the lease obligation.

BN.com is also in the process of closing the Santa Clara, Calif., headquarters of its Fatbrain subsidiary, which the company is integrating into its New York offices (News, Feb. 4). The company has already closed Fatbrain's Kentucky warehouse and two California bookstores.

During 2001, BN.com cut its fulfillment and customer service costs by 11%, to $44.6 million, by "achieving more efficiency in operations." BN.com reduced marketing, sales and editorial expenses by 26% last year, to $61.4 million. A large portion of those savings came from dropping its advertising expenses from $17.3 million in 2000 to $3.3 million last year. The company is projecting that costs in both fulfillment and customer service as well as in marketing, sales and editorial operation will decline in 2002 in absolute dollars as well as in percentage of net sales.

Spending on technology and Web site development rose 12% last year, to $45.3 million, largely because of the costs associated with operating Fatbrain's site. BN.com expects to spend less on technology and site development this year. General and administrative costs moved up 3% in 2001, due primarily to higher credit card processing costs as a result of the company's higher sales. The company said that in 2002 it expects g&a expenses to decrease as it "continues to focus on achieving further efficiencies."

Also on the expense side of the ledger was a one-time charge of $88.2 million that BN.com took in last year's fourth quarter. The charges included $33.4 million in facility closure costs; a $30-million write-down of Fatbrain goodwill; a $9.1-million impairment charge against its equity investments (including a write-off of $2.9 million of its investment in MightyWords); and a $15.6-million write-down of fixed and other assets.

The SEC filing also notes that BN.com purchased $126.2 million (45% of total) in merchandise from B&N last year, and also bought $1.1 million in goods from the Calendar Club, in which B&N has a 73.9% stake. Nearly all of BN.com's music and video items were acquired from AES One Stop Group, a company in which BN.com chairman Len Riggio has a minority stake. BN.com acquired $29.8 million in product from AES last year. BN.com also collected some fees from B&N. Under an agreement reached last year, BN.com earned $383,000 in commissions for shipping books to the homes of customers who had ordered the titles at B&N stores.

Looking ahead to 2002, BN.com said its capital expenditures in the year should range between $15 million and $20 million, although no details about how the funds will be spent were provided. BN.com's capital expenditures in 2001 were $10.5 million.

March Comps Up

B&N reported last week that comparable-store sales for its superstores rose 3.7% in March. Gains were reported strong in all categories. New titles that sold well in the month included Lucky Man, The Nanny Diaries, Three Fates and Everything's Eventual. Same-store sales at Dalton rose 0.4% for the month.