Few Bright Spots for Bookstore Chains

The emphasis for two of the nation's three major chains will be on controlling costs and reducing expenditures in 2009, said executives from Barnes & Noble and Books-A-Million in discussing year-end results. (Borders results are due out March 31.) Earnings fell at both retailers in the fiscal year ended January 31, and while the two were both profitable, profit margin fell to 1.5% at B&N, from 2.7%, and dropped to 2.1% at BAM from 3.1% in 2007. At B&N, superstore sales fell 4.4%, while sales through Barnes & Noble.com fell 2.3%; the decline at B&N.com was attributed to lighter traffic compared to a strong year in 2007. Last month, B&N hired William Lynch to oversee B&N.com.

B&N will limit its new store openings to 15 this year, with 11 of those being store relocations (it will open a 55,000-sq.-ft. store on New York City's East Side later this year). Controlling store payroll will continue to be a top priority, said CFO Joseph Lombardi, noting that even with a sales decline in the second half of the year, B&N's stores hit their targeted payroll goals, which was a primary factor in keeping expenses flat in the fourth quarter despite 13 net new store openings.

Riggio credited improvement in the company's supply chain for the chain's ability to improve gross margins last year, reporting that inventory turns and in-stock levels were at their highest ever last year, despite an 11% reduction in inventory. The retailer is cutting inventory in its music department (which, combined with DVDs, accounts for 8% of sales) and other slower-moving categories, Lombardi said. The company has also cut its purchases from wholesalers and is relying more on just-in-time replenishment to meet customers' demands. In addition, the company hopes to gain better lease terms as stores come up for renewal.

Newly installed BAM CEO Clyde Anderson said the chain “focused hard on cost controls” last year and will continue that focus this year. Bargain books, gifts and teen titles were bright spots last year.

Cost controls will be necessary at both chains, since the outlook for 2009 is not very promising. Although business was better in January than in November and December, B&N is still looking for comp sales to decline 6%—9% in the first quarter and 4%—6% for the full year. Anderson said business in the fourth quarter was better than in the third period, adding that customers continue to focus on value. He didn't have a prediction for the new year, but said he hoped the just released DVD of Twilight and a new James Patterson book would give a boost to sales.