The Digital Reader

Now With 100% Less Paper!

The Digital Reader header image 1

Can Barnes & Noble Be Saved?

February 6th, 2013 by · 20 Comments · opinion

With the release of both Amazon’s and Barnes & Nobles quarterly figures, which include the 2012 holiday season, the blogosphere has been rife with posts foretelling the demise of Barnes & Noble. I find it interesting that Amazon’s results weren’t much better than B&N’s (according to Businessweek, Amazon earned one-half cent for each dollar of revenue), yet investors continue to support Amazon and blast B&N.

I suppose the reason for the different treatment by investors is that Amazon has a broader range of goods for sale and that investors think eventually Amazon will be able to increase margins by raising prices as soon as Amazon can force competitors out of business.

So, what it boils down to is what can B&N do to revive its fortunes? Can its fortunes be revived?

As it stands today, pessimism is probably appropriate for B&N. Mitchell Klipper, B&N CEO, Leonard Riggio, chairman, and management crew have shown that they are incapable of forward or strategic, or maybe even tactical, thinking. Yet they remain in control of B&N.

It was not so long ago that my wife and I visited our local B&N nearly every week. We rarely left the store without purchasing at least a couple of books, and my purchases were always hardcovers (my wife would buy both hardcovers and paperbacks) — and that was in addition to what I would buy online at B&N and to my ebook purchases. But Klipper and his predecessor have done everything they can to turn me away from B&N stores.

First, they did away with the discount that membership gave me. The first time was by the refusal to sell me Nooks with a member’s discount. The tale then told was that the Nooks were already being sold at cost (remember when the first Nook was sold for $249?). So for the same price, I bought Sonys, which were better devices and bought ebooks at the Sony store and Smashwords instead of B&N, because B&N ‘s DRM was incompatible with my Sonys (although B&N could have made them compatible). It wasn’t long after that Amazon began cutting the price on its Kindles and B&N began cutting the price on the Nook. Riggio and Klipper should have given that discount to members!

Second, they changed the discount members received. I bought hardcovers at the B&N store and received a 20% discount on adult hardcovers that were not already discounted. This was not as much a discount as was being offered at B&N online, but it was satisfactory and I bought more than 100 books a year at the local store. Then the terms changed — the discount became 10%. That wasn’t competitive at all, and so I stopped buying locally, shifting to online purchases.

Third, when B&N finally offered a reasonable deal on a Nook, I bought a Nook tablet. The tablet has been wonderful. In fact, it has become my preferred reading device. But the device has a terrible built-in flaw: the worst customer service imaginable. Even though I have spoken to several higher-ups at B&N about the customer service problems, nothing has been done. It hasn’t gotten worse, but it hasn’t gotten better.

Let me clarify this: The customer service I am referring to is the online customer service, not the customer service at my local store. My local store gives great customer service — as good as Amazon’s and perhaps even better — but it can’t give me the customer service I need for the Nook and Nook ebooks. Also, it is worth noting that I rarely have ever needed customer service for a pbook.

When I need to call B&N customer service, I know I am in for a runaround and an aggravating time. The Nook “technical” support people are so ill-trained and so lack product knowledge and so lack customer service common sense that they do not even warrant being called a joke — it would be an insult to jokes. And this is Klipper’s fault. Based on what I see as a customer, B&N places no emphasis on customer service and apparently little on training. As the CEO of B&N, Klipper should be making customer service the #1, #2, and #3 priorities. You cannot keep frustrating customers and expect them to keep coming back. At some point they will abandon you for the competitor who is viewed as caring. Some of us will hold on longer, but not because we love B&N; rather, because we do not want to see one company become so dominant that there is little market competition. That’s why I continue to buy at B&N.

Klipper and crew also need to become innovative. It is clear that they cannot compete with Amazon based on either price or customer service, so they need to be innovative. They need to increase reasons for Nook owners to visit stores; they need to increase the number of members they have and entice them into stores; they need to entice the general public into the stores.

There are things that they can do. For example, arrange with publishers and authors to exclusively offer limited numbers of first edition, first printing, signed copies of new books. Some of us are collectors and would be willing to pay for such books. Make it so that these limited edition books can be bought online for a minimal to no discount but if bought at the local store — even if having to be shipped from a warehouse — the buyer would get a 20% to 25% discount on the book but also the same discount on any other book purchased at the same time at the store.

Make membership truly worthwhile. Increase the price to $50 a year (from the current $25) but give the member a guaranteed minimum discount of 20% to 25% on everything purchased, whether in the store or online, and if purchased online, with free 2-day shipping.

Another thing that can be done is to offer a free copy of the ebook with the purchase of the hardcover. Nonmembers would pay full price for the hardcover but members would get a 15% to 20% discount (or receive a higher discount if they chose not to get the free ebook). Get a jump on Amazon by getting publishers to offer this arrangement exclusive to B&N (i.e., the free ebook with hardcover purchase) for at least 90 days.

B&N could also make it so that a Nook owner could visit the local store and check out books but buy, on the spot, only the ebook version using a special code that gives the Nook owner a discount off the normal ebook price because it is bought while in the store.

Because the Nook and ebooks are central to B&N’s future, really make the stores a place for Nook buyers. Have a problem with your Nook or a Nook ebook purchase? Come to your local store for real customer service. Train local staff to do real technical troubleshooting, not what is currently done when you call tech support, and authorize local staff to really resolve customer service problems, including giving refunds.

One thing that B&N should immediately implement is a new library system and a new option button. What I mean is this: Now when I buy an ebook, the ebook appears in my Nook Library. In the Library there are option buttons that let me, for example, download the ebook so I can save a copy locally and recommend or lend the ebook. B&N needs to add an option button that tells B&N to notify me when the author has published another book that is for sale by B&N. Additionally, my Nook Library should be changed to my B&N Library and should include all books — p and e — that I buy from B&N, whether online or in-store, each with the notify option button. The one thing that should not happen is that I receive notification for books by authors for whom I did not ask for notification. In that case, a good idea becomes a bad idea and spam.

Most important of all, spend some money on providing real online customer service. Fire your current providers/staff and start from scratch with people who speak English and do not read from a script.

Can B&N be saved? Yes. Will it be saved? Not unless it changes its attitudes and direction.

Tags:

20 Comments so far ↓

  • steve

    FYI B&N has not reported earnings yet. Normally, they report their results on January 31st, but this year they didn’t. They’ve pushed it back to February 22 instead, probably to analyze the reasons for their poor NOOK holiday results and/or perhaps work on some kind of strategic move such as a NOOK spinoff.

    I just want to say, that I think all this talk about B&N going out of business is probably overblown. Clearly they have some problems, but all of those problems are solvable. Whatever changes they have to make, they have plenty of capital to do it; they’ve raised $500 million in capital this year, and they should still have all of it available.

    The retail stores, contrary to what everyone has been saying, increased EBITDA by 80% year over year for the quarter reporting in November, as well as the quarter before that. This is because, unlike Borders, they have fewer long term leases, and have been able to aggressively renegotiate to bring their costs down. What’s notable what their exec said recently about closing a third of their stores over the next 10 years, was that they have the flexibility to do this without too much strain.

    It’s rough because, while there is almost definitely a place for brick and mortar retail, no one has figured out exactly the right way to integrate online and brick and mortar retail together. Somebody will eventually though, and I think B&N, with their pleasant and well lit stores, should be at the forefront of that. I would expect them to start to experiment with smaller format stores as well. I think they’re probably going to work with publishers to bundle hardcovers with ebook editions as well.

    Beyond that, there is the fact that a lot of people need B&N to be around. I’m talking mainly about the publishers. Without all that shelf space, they’d have no way to market their books to customers. And if NOOK somehow went under, they’d be beholden to Amazon for digital distribution to a terrifying extent. I expect the Big 6 publishing houses would be quick to arrange a bail out in the case of this eventuality. Pearson’s recent $90 million equity stake might be where things are headed.

  • CJJ

    I do hope they explore smaller footprint stores. I wonder if the mixed media format they currently have (like Walden’s, Borders etc. did) is still viable. A books and Nook store would be appealing. The current stores are huge but once you take away the coffee counter, the games, the puzzles, the stationary, the DVD’s, the CD’s and the kitsch you really don’t have a lot of books on the shelf.

  • monopole

    Glad to see an article in TDR which doesn’t reflexively announce that B&N is DOOOOOMED cuz it isn’t a company with a name that starts with an A and doesn’t have a bald sociopath running it.

    I largely agree with the critique here. B&N has serious failings, but the Nooks are great hardware, they have a lot of local presence. I’d love to see a good integration of the Cafe with the Nooks, make a place where tablet owners congregate for free wifi, charging ports, special orders, and staff with expertise with books and Nooks (B&N) the literate equivalent of a Genius bar with actual potables.

  • Paul

    That’d my biggest worry about B&N, the lack of books in the store. I think they should scrap the CD’s, maybe even the DVD’s, but cheap the games and stationary because there is no where else you can get them.

  • Cherylray

    Opening up the Nook to 3rd party apps, without having to root, would also help. I have a Nook color with a N2A card, Nook HD+, and a Kindle fire. I really don’t like reading on the Kindle, the Nook products are far superior ereaders. As someone with almost zero computer skills, it took me less than 2 minutes to get the Nook app on the Kindle. The B&N app store sucks, and their web site isn’t much better. The Amazon universe is easier and more user friendly. And while B&N can’t really compete with Amazon, there is no good reason why B&N can’t make their online experience better.

    • fjtorres

      One thing I’ve noticed: B&N tends to do some “big”, high-profile things right. And then they pair them with a zillion little things they do wrong, frittering all the goodwill they earned with the big move and then some.

      Like the Fictionwise migration to Nook: great idea bringing in the Fictionwise ebooks to a Nook account. They actually got a lot of people to *open* Nook accounts. Then they annoyed the heck out of them by the process, the endless waits, the little glitches that required phone calls to customer (non)support.

      Or the NookHD+: nice price point. Nice SD Card support. Not so nice needing a proprietary charger, not so nice pricing on the (still unavailable?) proprietary HDMI cable. Definitely not nice locking the hardware to block app sideloading.

      Or their recent decision to enable use of MSPoints to buy content. Yay! A credit card-less micropayment system to match Amazon’s Coins. You can buy MSP cards everywhere. And they even go on sale on occasion. Great idea.
      Not so great: you can’t use MSPoints to buy ebooks unless you already have a credit card. Kinda negates one of the biggest advantages *to consumers*.

      They need to start sweating the details, too.

  • fjtorres

    “Some of us will hold on longer, but not because we love B&N; rather, because we do not want to see one company become so dominant that there is little market competition. That’s why I continue to buy at B&N.”

    As long as this position remains out there, B&N will continue to tell themselves they are “safe” no matter how badly they continue to perform. They will continue to assume they are indispensable, that they will always find somebody to bail them out…

    And they will do nothing to address your concerns.

    As long as enough Amazon haters stay with B&N, no matter how abusive the relationship gets, B&N will never do what they need to get their business in order.

    BTW, re:
    “It wasn’t long after that Amazon began cutting the price on its Kindles and B&N began cutting the price on the Nook. ”

    The causality on that statement is backwards. It was B&N that *twice* sought to undercut Amazon on hardware pricing. *They* are the ones who moved hardware sales to cost-based pricing from market-based pricing. Amazon sold Kindles at prices comparable to the hardware only vendors, Sony in particular, until forced to. If B&N finds itself selling Nooks at cost, they only have *themselves* to blame.

    Finally, if Wall street and the blogosphere treat Amazon and B&N differently it might be because Amazon leadership gives every indication of working to a master strategic plan, whereas B&N leadership gives the impression of randomly throwing darts at a wall.

    Amazon’s financials get different reception because they usually come with reports like this:
    http://www.teleread.com/ebooks/amazon-announces-three-new-fulfillment-centers-in-texas/

    And because something like 45% of Amazon sales is from third-party products.
    So putting those giant fullfilment centers to work doesn’t depend on Amazon’s selling prowess.
    (Me, I think Amazon is headed for a merger with UPS or FedEx.)

    B&N needs to get over their Ahab-like obsession with Amazon and start paying attention to their own business. And instead of pandering to publishers and thinking of ways to hurt Amazon they need to (finally!) start pandering to consumers.

    An integrated library system is a good idea.
    A better loyalty program, ditto.
    But first and foremost, they need to *start* doing customer service that doesn’t need escalation to Riggio to get anything done. (re: Fictionwise shut down among other issues.)

  • kurt

    increasing membership cost would hardly increase membership no matter what the discount IMHO
    now a free membership card with a moderate discount would make a great deal of difference (had a free 1 year membership when the local store first opened – almost exclusively purchased magazines, CDs and DVDs from that store)

    i remember the days of the buy 10,12,15 paperbacks get one free (not B&N) – that store would get complete loyalty

    bought myself a nook+ hd for christmas and even that was purchased from Target instead of B&N – intended to buy it in store but missed their $25 gift card with purchase by about 12 hours and though i tried they weren’t giving it up nor my suggestion of a free membership – got the gift card from target though
    and like the nook color i’ve had for nearly 2 years i won’t be purchasing ebooks from B&N to run on the new machine

  • wayne leong

    Have you tried sending your suggestions to the head man, as well as the board of directors, as well as the store managers, as well as whoever else might have a part in the decision making process ? Direct feedback from customers might kick them into doing something.

  • Doug

    B&N isn’t a monolith. It consists of a number of separate parts, and those parts need to be looked at separately.

    The Retail division runs the big-box bookstores. This division has been consistently profitable. Not stunningly profitable, but bookselling is a mature industry with little room for growth. The Retail division’s CEO has tacitly acknowledged that bookstores are in secular decline, and his division expects to have to close an average of 20 stores a year. I think this forward-looking is a good sign for this division.

    BN.com runs the online site. This operation was created shortly after Amazon, and has run continuous losses until B&N quit separately reporting its financials about a year ago. From my outside perspective, BN.com is a disaster. I’ve seen a few signs that some of its worst problems are being addressed — the Advanced Search is working for ebooks again after a year-long outage, and BN.com managed to stay up during the past two Christmas seasons. Some of the most egregious search failures have been addressed. But they have an awful long way to go.

    Significantly, the profits from Retail have been sufficient to cover the losses from BN.com, with some money left over.

    The NOOK business, including e-book sales, has been a money-loser from the start. It continues to lose significant amounts of money for B&N, and I’m not hearing any plan to correct that. In mid-2011, B&N CEO William Lynch said that they expected to get the NOOK business profitable over the following year, then three months later he said that was no longer a goal.

    I’m not familiar enough with the College bookstores to say anything here.

    The NOOK business and the College bookstores are now in a separate operation, NOOK Media. Whether NOOK Media gets kept as is, sold off, spun off, or shut down, B&N’s corporate cashflow is now somewhat distanced from that of NOOK Media. Of late, investment inflow to NOOK Media has been from Microsoft and Pearson, not from B&N.

    There’s plenty of room for B&N to remain afloat as a bookstore operator. There also are plenty of ways B&N could screw it up. Time will tell.

  • B.K.

    I’m continually amazed at the stories I hear and read about B&N’s deplorable customer service.

    I’ve met loyal Nooks owners who are given the run-around in getting replacements for their ‘under-warrantied’ devices. You should not have to make three phone calls or be handed-off to multiple ‘supervisors’ just so you can have a CPO replacement mailed to your home. It’s inexcusable.

    I don’t believe raising the cost of the ‘Membership Program’ is the right approach. Yes. Raising the discount to 15-20% across the board would be a HUGE boost.

    Furthermore, cherry-picking some of the benefits of B&N’s ‘Kids Club’ and ‘Educator’ programs would be good move. The former has a points system that results in a time-sensitive $5 virtual-GC for every 100-points accrued on kid’s books and toys.

    The ‘Educator’ card, on the other hand, offers 25% shopping weeks or weekends several times a year at local stores. I cannot think of any reason why B&N can’t add that kinds of benefits (re: shopping days) to the “paid” discount program.

    Like fjtorres mentioned upthread, these are just some of “details” B&N needs to start sweating.

  • B.K.

    “The Retail division’s CEO has tacitly acknowledged that bookstores are in secular decline, and his division expects to have to close an average of 20 stores a year. I think this forward-looking is a good sign for this division.”

    B&N needs to close under-performing stores and it’s good that they do so in order to keep their heads above water. Of course, I type this knowing that my store may very likely be on the chopping block in two years. lol

    However, revealing this “forward-thinking” strategy in a public press-release may not have been the best move. Most customers see the word close and not much else after that; once bitten, twice shy, thanks to Borders.

    As a result, Nook and discount card sales have taken a hit. Why would someone invest in B&N’s ecosystem, their device or yearly discount program, if they didn’t think the company would be around in a couple of years?

    • Doug

      To be picky, it wasn’t a press release. It was an interview, apparently with the Wall Street Journal.

      To also be picky, the fate of the B&N Retail division is pretty much unrelated to any of those other things. NOOK and e-books are in the separate NOOK Media operation. The membership is mainly useful for free shipping from BN.com, a la Amazon Prime.

      But then, B&N doesn’t make those organizational boundaries clear, so it’s reasonable to expect that consumers will misunderstand.

  • Alexander Inglis

    Footnote: Indigo’s quarterly results are hardly stellar but, given the industry they are in, and a slow growth economy, they did “ok”. Sales were lower than previous year but expenses were lower so the net decline of operating profit was modest. Indigo unwound its full position in Kobo but continues to enjoy a revenue stream of ebook sales. And, unlike B&N, Indigo has virtually no long-term debt — less than $2M. Among bookstore chains in the US, UK, Canada and Australia, Indigo is actually doing pretty well.

  • willem

    Can bookstores be saved? That is the real question that needs answering.

    • fjtorres

      If we’re going *there*, I’d say that bookstores *will* survive but the kind of bookstore that survives and how it works is to be determined. ;)

      • willem

        Well if you mean to say will there be some bookstores then sure, but they will be miniscule in number, and in terms of adding anything of value, whether to publishers, authors or readers.

        As such I find this obsession about bookstores just bizarre. They are no more going to survive than did the horse and buggy industry. One can still find horse drawn carriages but they play no economic role worth speaking about.

        By the way I write this as somebody who worked in a bookstore including some years as manager and stock controller. The economics of bookstore bookselling was damaged by the internet and is now being made irrelevant by the move to ebooks.

Leave a Comment