Barnes & Noble Sees Its Future As E-Commerce Retailer

Despite weak sales a year ago, Barnes & Noble's trade stores still posted a 4.7% decline for the quarter ended January 30, 2010, with comp sales off 5.5%; the country's largest bookseller expects same-store sales for the year ending April 30 to fall 3%—5%. That is one reason B&N CEO Steve Riggio, during last week's conference call with analysts, chose to highlight the early success of its digital strategy. Riggio went so far as to call 2010 a “watershed year” during which B&N will start to transition from a bricks-and-mortar retailer to an e-commerce retailer.

While Riggio said B&N, for competitive reasons, will not break out sales of e-books and the Nook, he did allow that sales of e-books “exploded” at B&N.com in the most recent quarter, while the Nook has become the biggest-selling single item for the company. E-book sales went well beyond titles for the Nook, B&N.com president William Lynch said, noting that there was strong demand for e-books for use on a variety of devices, ranging from the iPhone to Blackberrys. B&N remains committed to providing consumers access to content wherever they want it, stressed Riggio.

B&N's experience since it re-entered the e-book marketplace less than a year ago has convinced Riggio that the market will be more consolidated than the traditional retail market. While it took B&N years to achieve its 18% market share of retail, Riggio believes it can achieve that “overnight” in the e-book market. Indeed, the Book Industry Study Group—sponsored study, “Consumer Attitudes Toward E-Book Reading,” found consumers increasingly buying e-books at B&N.com; 23% of e-book buyers in the most recent survey said they bought e-books from B&N.com, up from 18% three months ago. (Amazon is the top site for acquiring e-books, with 60% of e-book buyers acquiring titles there, up from 48%). Despite all the attention being given to the competition between Apple and Amazon over e-books, Riggio said “it is not a two-horse race,” noting that, with its core technology now in place, B&N is well positioned to offer all types of digital content, including newspapers.

While one analyst questioned B&N's decision to invest in developing its own e-reader, Riggio said the Nook will help drive customers into stores, and said that with Nooks now fully in stock, he expects the devices to be growth drivers. B&N will expand its Nook displays and will make booksellers digital “evangelists,” Riggio said. The sale of Nooks helped to drive up sales at B&N.com by 67% in January, although Riggio said sales of all products had good growth in the month and that traffic to the site was up “enormously.”

Riggio came out in favor of the agency pricing model for e-books, saying it will likely be the dominant selling term for e-books (although he said he didn't think it would be used for print books). As the pricing on e-books evolves, Riggio said B&N would have better margins on e-books than on print books. He said e-books are a great growth story for B&N, one that could rival the growth the retailer had when it began rolling out its superstores in the 1990s. But while Riggio said the company intends to remain the country's largest traditional booksellers, its own actions suggest that booksellers need to find other ways than selling print books through bricks-and-mortar stores if they are to survive. The company has invested heavily to lessen its dependence on superstores, buying B&N College Booksellers, acquiring Fictionwise, and establishing a Palo Alto, Calif., digital development facility that spearheaded the creation of the Nook.

Barnes & Noble, Third Quarter
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