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It’s Not Just B&N: Indigo, Thalia Reported Poor Sales This Past Holiday Season

February 7th, 2013 by · 38 Comments · ebookstore news

B&N's future

B&N’s future

Barnes & Noble got a lot of bad press a few weeks back when they reported abysmal holiday sales, but it turns out they’re not the only ones. The German bookseller Thalia and the Canadian bookstore conglomerate Indigo have each reported an unexpected drop in sales for the last quarter of 2012.

Thalia, a chain of 298 bookstores, reported that sales were down 2.5% in the October through December period. The German stores dropped the most, averaging a 3.7% decline in sales, while Thalia’s stores in Austria and Switzerland saw a 1.2% decrease in sales.

Indigo, the company that used to own Kobo, saw a 4.9% drop in net revenue across the various chains (Coles, Chapters, Indigo):

Revenue for the quarter was $335.6 million.  The decrease was due to lower eReader revenues and declining book sales, as consumers shift to digital reading, and the absence of any hit books as against two blockbusters last holiday.

So one detail that can be learned from this is that Barnes & Noble wasn’t the only bookseller to have a bad quarter. If you want to argue misery loves company then this is a good thing. But there are also a couple important details that separate Thalia and Indigo from Barnes & Noble. Both of the other chains are in a much better financial condition.

Indigo might have seen a drop in revenue, but their gross profit grew due by 2.2%. Indigo attributed the growth to “a shift to higher margin gift and lifestyle products, lower sales discounts, fewer markdowns, and shipping more products through the Company’s distribution centres”. And even if Indigo had seen a poor quarter, they also sold off Kobo last year so they don’t have a debt problem or a need to invest capital in developing new ereader hardware.

And Thalia is owned by Douglas Holdings, a German retail conglomerate. Douglas as a whole saw a 1.5% increase in revenue. That means that even if Thalia’s revenues don’t improve they can afford to carry the bookseller for at least a little while.

Update: David Gaughran pointed me to a story I had missed. The UK based Waterstones also had a poor Christmas quarter but still managed to boost sales by 5%. The managing director, James Daunt, is confident that he will be able to turn the company around.

None of the bookstore chains are in as bad of a situation as Barnes & Noble. Of course, we don’t yet know B&N’s true status; they will not release the latest quarterly statement for another few weeks (it covers November, December, and January). All we know at this point is that the company revenues for the 9-week holiday season dropped 10.9% from the year before.

When I reported on that detail a few weeks back I said that it was terrible news. Now that we have the perspective of comparing B&N’s news to nearly as large chains in other countries it’s clear now that I was not completely wrong.

B&N has not one but 3 millstones around their neck. Revenue and especially retail sales are down (and sales of Nook dropped even more) while at the same time B&N has to continue to invest in Nook hardware. Considering that B&N is carrying debt equal to about half their stock market value (Forbes), it’s pretty obvious that B&N really is in a dire state.

At this point it is going to be hard to dispute that B&N is close to following in the footsteps of Borders. B&N is the slow, fat guy in the zombie movies and the undead are approaching fast.

From the outside it looks like B&N is going to need 2 things to save them. First they will have to sell off Nook Media and get out from under the debt cloud. Next they will need to find someone who can swoop in and save the company by forcing a massive change in the corporate culture.  IMO the main reason B&N is in its current state is that the current management is running the company into the ground.

These are the folks who think that the way forward is to give up market share and shrink down to only 500 stores. These are also the folks who thought it was a good idea to spout that crazyness to the WSJ as their plan for the future. (Sidenote: That blunder and the public perception of B&N’s imminent demise it created is the 3rd millstone around B&N’s neck.) These are the folks who continued to invest huge sums in proprietary hardware even as sales dropped in 2012. These are the folks who decided to sell off Nook Media piecemeal rather than as a single unit.

TBH I don’t see any of that happening. Saving B&N will require radical decisions and the current management just doesn’t seem capable of it.

If B&N is still around in January 2014 (and not in bankruptcy proceedings) I will be terribly surprised.

image by Joelk75

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38 Comments so far ↓

    • Nate Hoffelder

      Missed that one. Thanks!

      Luckily for Waterstones they already have a savior in place. And now it looks like they had the good sense not to sell Nook as B&N’s UK partner.

  • flyingtoastr

    You really don’t understand corporate debt, do you?

    • Nate Hoffelder

      I understand that B&N is operating under a cloud, in a down economy, in a declining industry, so they don’t have the same leeway that other companies will have.

      What did I get wrong about the debt?

      • fjtorres

        Speaking of leeway, you seen this:
        http://www.slate.com/articles/technology/technology/2013/02/amazon_coins_jeff_bezos_brilliant_plan_to_give_free_money_to_kindle_fire.html

        Of note and relevance:
        “Back in November, Amazon did something a bit unusual. It issued $3 billion in bonds for no particular reason other than because it had an excellent credit rating and no outstanding debt and so could borrow money cheaply.”

        And this:
        “Amazon’s three-, five-, and 10-year bonds pay interest rates of 0.65, 1.2, and 2.5 percent respectively. That’s nothing. In fact, in inflation-adjusted terms, the three- and five-year bonds literally pay less than nothing.”

        B&N is so in hock they are selling Nook Media piecemeal, while people *pay* Amazon to use their money. TANJ! :)

      • flyingtoastr

        Debt =/= to cash on hand. As of their last quarterly SEC filing BN had $338.4 million in long-term debt and $471 million in cash. So BN could quite easily wipe out their entire debt and still have plenty of money left to run day-to-day of the company.

        So your entire statement – that BN is dying of debt overload – is completely, totally, and painfully false.

        BN is having issues, but their long-term debt isn’t one of them.

        • Nate Hoffelder

          I bet you that a good part of that cash on hand will be eaten up by B&N’s losses this last quarter.

          • flyingtoastr

            BN’s retail sales last year for the holiday quarter were $1.49 billion. Same store sales dropped 8.2% this last year, leaving us with approx. $1.37 billion in sales.

            The retail segment had $205 million in earnings last year (again, on sales of $1.49 billion). If BN was able to maintain margins, the drop of sales this year would still leave them with ~$80 million in earnings from the retail division. And that’s not counting the fact that digital content sales were up 13% for the quarter, which is additional revenue to offset the decrease in store traffic.

            Naturally that’s a lot of “ifs”, but don’t assume that a decrease in sales means a net negative quarter. BN still sold a lot of stuff – just not as much as they did last year.

          • flyingtoastr

            Need an edit button.

            The retail sales for 2011 were the $1.49 billion that I cited. Got my “lasts” confused.

        • Mike Cane

          >>>and still have plenty of money left to run day-to-day of the company.

          Riiiight. After closing how many stores?

          • flyingtoastr

            ???

            The physical store division of the company is still profitable. It’s the massive investments in the NOOK side of things that are dragging everything down.

            Do you ever think before you post?

          • Mike Cane

            >>>Do you ever think before you post?

            Yeah, but never when replying to you.

  • fjtorres

    Indigo and Waterstones I know are cast in the Borders/B&N big store model but I’m not sure about Thalia. Anybody know what their typical store and catalog size is?

    While I agree that B&N’s management is a big part of the problem it is not all of it and the root of the matter is that in an age of online book sales and mainstream ebooks people are going to be less inclined to travel significant distances to find books so the customer base that each specific store can draw upon is shrinking and will continue to shrink. Effectively, each store “coverage” is shrinking. Closing stores, with no replacement, simply reduces the total coverage of the chain, driving their “fringe” customers to the alternatives. They are writing off the customers they did have in that area.

    The market is sending all these bookstore chains the same message: your model isn’t working for me. The different chains seem to be trying a mix of things but B&N seems to be the one publicly committed to closing stores that stop “performing”. This assumes that stores that are profitable today will still be profitable next year and suggests that if they aren’t they too will be shut down. So that quoted number of store closures is most likely a minimum, not a maximum. They will be closing *at least* a third of their current stores to retrench.

    Retrenching isn’t going to bring customers back; all it does is shrink the company to fit the customer base and if the customer base keeps shrinking the chain will simply have to close more stores. This cycle has a name in tech circles…

  • Mike Cane

    These stories are boring. Is there anyone with any *brains* who really doesn’t think all of these stores are doomed?

    • fjtorres

      Are you suggesting a moratorium? ;)
      Cause I’m curious to see if there’s *any* market with online sales & mainstream ebooks where big box bookstores aren’t hurting. Then we could see what they’re doing different.

      • Mike Cane

        It’s the constant drip-drip-drip of inevitable reality. Are people sitting shiva over VHS/DVD rental stores? No. They’re all partying at home with their Netflix. Only with books do we have this hand-wringing. Because, you know, books are special snowflakes. *Books* are — writers can go eff themselves since they’re not made of sniffable paper, apparently.

        • fjtorres

          Of course books are a special snowflake!
          You heathen! Books are culture! Bookstores are temples of literature!
          And the smell of pbooks is even better than olympian ambrosia.
          Civilization might collapse!

          Or, we might be two weeks away from the start of spring training and wondering how bad things might be that B&N postponed their financial report a whole month. The last time I saw something like that forensic accounting was involved…
          In other words, inquiring minds want to know.
          Or in one word: Gossip! :)

          • Doug

            I’m curious about the statement that, “B&N postponed their financial report a whole month.” The last I heard was in B&N’s January 3rd announcement of disappointing holiday sales, where they said, “Barnes & Noble, Inc. will report second quarter results on or about February 19, 2013.” Erm, I think they meant third-quarter. And Reuters recently reported the release date as “November 19,” but that’s gotta be a typo, too — maybe because November is when second-quarter results are reported.

            Anyway, that date of 2/19/2013 is in keeping with B&N’s 8Ks for the third quarter in past years: 02/23/2010, 02/22/2011, 02/20/2012.

  • Conrad

    BN must do 2 things to have a chance to survive:

    1: be able to sell books in store at close to online prices, maybe with some club membership similar to the Amazon Prime that gives 2 day shipping negating the “immediacy” of the store to a large extent

    2: un-shackle the Nook; their walled garden is pathetic, better go for a full Android tablet experience as the Nook tablet is just excellent hardware

    Can/will they do it? We will see but otherwise I think that they will go down; shrinking footprint and/or number of stores is just a shortcut to oblivion

    • flyingtoastr

      So you’re suggestion for how BN should make more money is:

      1. Sell books at a loss
      2. Lose digital content revenue to a competing platform for their books, magazines, apps, and movies

      Tell me more, please.

      • fjtorres

        B&N can do no wrong. Everything is just fine. They are doing as well as anybody can possibly do.

        Never mind…

      • Nate Hoffelder

        “Lose digital content revenue to a competing platform for their books, magazines, apps, and movies”

        Absolutely! It’s a basic principle called “don’t capture all the value”. Tim O’Reilly coined it, I think.

        In blocking outside apps B&N is also reducing the value that customers can gain from the Nook hardware. That probably encourages would-be buyers to shop elsewhere.

        • flyingtoastr

          I’m not saying BN should block outside apps (for the record, I think having the “outside sources” box allowed to be checked is a good idea for the platform).

          I’m saying installing the Google Play Store by default – which is Google Apps, Books, Magazines, Movies, and Music – is a terrible idea. It’s the equivalent of BN shipping with the Kindle app built in to their readers. BN needs content revenue from their nil-margin devices, why on earth would they put a competitor’s store front and center?

          The days of the Android Market being only apps are long gone. Google Play competes with BN directly in their home turf.

          • Mike Cane

            >>>I’m saying installing the Google Play Store by default is a terrible idea

            Yeah, because why make life easier for your customers? Let them all have to root. Do *you* think before posting?

          • fjtorres

            I smell a duel coming.
            I assume Nate will be your second?
            (Since you’ll get to choose the weapons, I suggest artillery pieces at 50 paces.)

          • Nate Hoffelder

            I can’t be his second. I’m too busy selling tickets.

          • yuzutea

            I think they should at least allow people to install the Google Play store. Otherwise they are selling the HD tablet for the same price as Nexus 7 with an inferior store and no hope of alternate app sources.

            Personally I think they should get out of the tablet market though. Or maybe just sell Nexuses or Windows tabs, and concentrate on the e-ink readers.

      • Conrad

        as 1 goes, nope, not sell books at a loss but renegotiate with publishers (who have a huge interest to keep BN alive) such that they can get close to online prices; today the “immediacy” value of buying in store vs waiting for a package is getting smaller

        as 2 goes, right now BN is getting clobbered digitally so I am not sure that keeping their walled garden will work; maybe get out completely of digital

        maybe the publishers will form a consortium and buy BN though after they got whacked by the DoJ in their price-fixing scheme, that may be tricky

  • yuzutea

    Oh boy, another fight over B&N’s survival!

    Any word about Books a Million?

    • fjtorres

      Well, we started wondering about other big box chains in non-US markets but yeah, it degenerated into the usual…
      BAM? They seem to be doing okay; none of their execs are publicly warning of closing down stores. ;)
      (Last I heard they were cautiously expanding into Border-less regions.)

    • Nate Hoffelder

      No idea, but then again BAM doesn’t have the habit of making a public spectacle of themselves with each new bit of news.

      The first reason we pay attention to B&N is that they maintain a media presence in order to promote the Nook hardware. That means when bad news happens we talk about them even more.

      • fjtorres

        You’re being kind. Stop it; it’s out of character. ;)

        We notice every little detail about B&N’s problems because they are the reality TV of the book world. They’re the aging Divas of bookselling, throwing tantrums when somebody else gets a bit of attention, looking for every chance to snipe at their rivals, obsessesed over their reputation, and clearly living beyond their means to keep up appearances.
        They *invite* scrutiny with their high Drama Queen profile.

        They make gossiping about them worthwhile.
        BAM and Half-price Books, like most of the thousands of indies out there, quietly spend their time taking care of business instead of issuing high-minded pronouncements.

  • willem

    The era of bookstore chains is rapidly drawing to a close. It was a pretty short one at that, and all the well meaning suggestions for saving them is so much whistling past the graveyard.
    The digital future has little place for bookshops, much less a chain of them.

    Still even in an industry in secular decline there is money to be made. Shareholders might well be aggrieved that all B&N’s profit in the last years have been thrown away in Riggio’ attempt to make B&N a digital powerhouse.

    • fjtorres

      They *are* aggrieved.
      At least some of them want Nook Media spun off and monetized (ala Indigo/Kobo) right away, while it can still bring in more cash than the rest of the company is worth.

      • willem

        That is indeed the case. Pretty much the only way to recoup the money they poured into the Nook, since by all accounts it will remain a money loser.

        If they fail the whole Nook endeavor will stand as an object lesson of what not to do when your business is about to be offed by technology.

    • Mike Cane

      >>>The era of bookstore chains is rapidly drawing to a close. It was a pretty short one at that

      Well, they lasted longer than Blockbuster and the record stores, so there’s that.

      The Big 6/4 should be the ones freaking out, not readers. Writers will always write, even if it’s just direct to KDP. Publishers, on the other hand, will have to scale back and become just a shadow of what they were. They can cry over Amazon all they want, but Amazon is not the problem. Competition from games, the Net, and video is dooming them.

      You know, now I’m even thinking that when Amazon introduced a tablet, that was really them throwing in the towel on books…

      • willem

        It is impossible to know what the long term future holds, but they are likely to be bad for publishers and worse for bookstores. The future for writers… murky but radical reform of copyright seems a distinct possibility. The option of ‘free’ will become much more important for sure.

        You can see that I’m pretty skeptical that there will be a lot of money to be made in digital. Consumers will be the big winners.

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