Barnes & Noble is the world's largest retail bookseller with more than 630 retail outlets. At its peak in 2008, Barnes & Noble had 726 stores, as well as a chain of 674 college bookstores, but what was once a leading player in the wave of market consolidation that threatened the survival of independent bookstores, is now losing share to local small scale retail stores. While Amazon disrupted the sale of retail markets, according to Dan Cullen, a representative for the independent bookseller trade group, American Booksellers Association, independent bookstores are experiencing consistent growth. In 2017, sales at independent bookstores increased by 2.6 percent, whereas Barnes & Noble's retail shares dropped 6.4 percent.
Barnes & Noble has been facing a consistent drop in sales since 2013, and the amount of losses has been increasing. Since 2013, the company has had five different CEOs, the last one having been fired. Preceding 2013, the company had had only 2 CEOs in 13 years. This rapid change in leadership over the past six years along with the decline in sales suggests a possible correlation between the two, and hence this essay aims to investigate to what extent the change in leadership of Barnes & Noble has impacted its sales revenue.
In order to investigate the correlation, this investigation will focus on identifying and analyzing various plausible causes for the drop in sales revenue of Barnes & Noble. By examining their fiscal reports and evaluating multiple online articles, a reasoned conclusion will be drawn on the extent of the impact a continuous change in leadership has had.
All the data used to examine the possible reasons for a drop in Barnes and Noble's sales revenue originates from secondary sources. This investigation will make use of a range of secondary sources such as magazine articles, news broadcasts, annual reports, and news articles. While the company's annual reports will provide data on the change in sales revenue and profits over the years, it will not give any information about possible causes for the change. Hence other sources such as articles and broadcasts will need to be used. However, another limitation to these sources is that they may be biased and only focus on one perspective or side of the issue. Hence a wide range of articles will need to be analyzed before any conclusions are drawn.
The tools that will be used for this investigation are:
- BCG matrix
- Position map
- SWOT analysis
- Kahn retailing success matrix
A SWOT analysis will be carried out in order to identify the internal strengths and weaknesses of Barnes & Nobles as well as external opportunities and threats that present themselves due to the change in the external environment. The BCG matrix will be used in order to see what products Barnes & Noble could remove in order to improve their financial situation. This model, however, only looks at market share and growth rate and overlooks other indicators of profitability. It also classifies products as either high and low and ignores the possibility of a medium, therefore not reflecting the true nature of the business. A position map will be used in order to evaluate the customer's perception of Barnes & Noble and devise strategies that can change the attitude to one that is more favorable. Kahn retailing success matrix is an analytical tool that will help in determining what qualities Barnes & Noble lacks that led to a decline in its sales.
Background of the company
Founded in 1873, Barnes and noble began its journey as a book business founded by Charles M. Barnes in his home in Illinois. In 1917, his son, William, joined G. Clifford Noble and established Barnes & Noble. Together, in the height of the Great Depression, they opened a store on 5th avenue in New York City, which later came to be known as Barnes & Noble’s flagship store. In 1965, the modern-day founder of the company opened his own competing store called, the Student Book Exchange, which quickly became one of New York’s finest bookstores and in 1971, he acquired Barnes & Noble’s trade name and flagship store for $1.2 million. Under his leadership, the American store became an American mainstay. By 1974, the store offered a 150,000 books and ran the first ever television commercial from a bookseller. It expanded across New York and Boston by opening smaller discount bookstores but they were phased out in favor its staple, superstores, featuring hundreds of thousands of books, reading areas and cafes. It became a destination where customers could spend hours in the store reading a book and having coffee from their in-store Starbucks.
Expansion of Barnes and Noble
In 1987, Barnes & Noble made its largest acquisition when it bought the chain of B. Dalton bookstores, acquiring 797 bookstores, making it the second biggest chain bookstore. This period could be called Barnes & Noble’s peak. It was everywhere and gained a reputation for running smaller bookstores out of business. In 1993, Barnes & Noble went public and opened its online store in 1997. During this time, Jeff Bezos opened his own online bookselling business, Amazon. This is where Barnes & Noble’s downwards spiral began, as it struggled to keep up with the internet’s disruption.
Entry into the online market
As foot traffic to Barnes & Noble’s B. Dalton stores started falling, Barnes & Noble decided to start closing the mall stores until all B. Dalton stores were closed by 2010. Their aim was to focus on their own superstores but it has even had to close down those stores, shutting down 126 locations between 2008 and 2018. Meanwhile, Barnes & Noble tried to expand into selling into music and movies, right as Spotify and Netflix began. It later tried to launch its E-Reader, NOOK, in 2009, but Amazon had already entered the market with its kindle and soon after Apple launched the iPad.
Leadership of Barnes and Noble
While the number of independent bookstores has increased by 35% between 2009 and 2015, Barnes & Noble’s sales have fallen every year since 2012 and the company has had 5 CEOs since 2013. The constant change in CEOs and decline in sales revenue impacts not only Barnes & Noble, but the whole publishing industry as it still relies on this retailer as a key outlet.
In June of 2019, Barnes & Noble was acquired the hedge fund, Elliot advisors, for $638 million, causing yet another change in the leadership of the company with James Daunt as the new CEO.
Analyzing the external threats and internal weaknesses
Barnes & Noble operates in the bookselling industry with its major retail competitors being Books-A-Million and other independent bookstores. Books-A-Million operates 250 retail stores, and even though it operates fewer stores, it has been experiencing a consistent growth in its sales revenue, while Barnes & Noble has been seeing a decline. In 2013 Barnes & Noble's sales revenue was 5.08 billion dollars, and in 2018 that number has fallen to 3.66 billion dollars.
The increase in their competitor's sales suggests that it is not just external factors that have led to a decline in Barnes & Noble's sales but internal factors as well. This is not to say external factors have not played a role.
Growing competition has been one of Barnes & Noble's biggest external threats. With the entry of Amazon, Barnes & Noble faced a substantial decline in market share as well as profit. It has also faced competition from companies such as Walmart and Target that have also entered the market and in addition to books provide many other products making them convenient locations to shop at for consumers. Its competitors, such as Books-A-Million also use heavy price discounting strategies, selling some books at half the price. This threatens sales at Barnes & Noble.
An excessively growing number of brick and mortar stores and a younger, less brand loyal customer base also act as threats. Since independent bookstores often have local owners who can better understand the wants and preferences of locals, the experience provided in these stores is more individualized and the increasing number of these stores provides a growing competition for Barnes & Noble and hence a threat. Additionally, today's generation's youth is more used to shopping online and don't have brand loyalty towards Barnes & Noble, making that another threat.
Another threat that Barnes & Noble faces is substitute goods. A lot of consumers now prefer to read books online whether to save paper or because it is more convenient, consumers are switching to e-readers, and while Barnes & Noble does provide an e-reader called Nook, its success is limited, and Amazon's Kindle sales far surpass those of Nook. While Nook was an initial success and captured 27% of the US e-book market, it has struggled to compete with rivals that provide far more apps and content. In fact, Nook sales have dropped 22% from 2017, and it has been generating operating losses. People are also choosing to watch television shows and movies instead of reading, which further poses a threat to Barnes & Noble.
Barnes & Noble also has weaknesses such as a constant change in leadership and the inability to adapt to the changing external market. In a different era of retail, a lack of stable leadership has left Barnes & Noble unable to adapt itself to the changes.
Analyzing internal strengths and external opportunities
Barnes & Noble has numerous strengths that allow the company to remain competitive. According to the company, their four key competencies are "putting the book in the customer's hand, offering to order the book, offering a membership and fast cashiering." So a significant strength of the company is the experience and environment that it provides for its customers. Unlike online competitors, Barnes & Noble offers a setting where consumers can sit and enjoy reading the book amongst shelves lined with books. The company also has a tie-up with Starbucks, allowing customers to enjoy a cup of coffee while reading their books.
However, by having a tie-up with a multinational brand like Starbucks, a lot of customers stop at Barnes & Noble only to pick up a coffee and don't stop to purchase a book. Instead of tying up with a coffee shop available at every street corner, Barnes & Noble can have independent cafes in their store where people stop by to enjoy the ambiance and not just to grab a quick coffee. An alternative is to change the book placements in the store. The bestsellers and best reads can be placed in front of and within the Starbucks to attract customers even if there are there to just pick up a cup of coffee. Additionally, operating physical retail stores is expensive, and the in-store experience currently being provided is not enough to attract customers as Barnes & Noble's sales have been consistently declining, leaving the company losing money year after year and resulting in the company shutting down 90 stores and firing 1,800 employees.
Since Barnes & Noble only has stores in the United States, it has the opportunity to expand and set up retail stores in other countries. While it does ship internationally, it does not have a physical presence, which is a major differentiating factor for the business. Barnes & Noble specializes in providing an experience that shopping online cannot, from the excellent customer service, and the in-store cafes, it beats Amazon in the experience it provides. However, Amazon has more convenient shipping and partnerships with a number of retail bookstores internationally and hence is better when it comes to buying books online. So instead of just shipping internationally, Barnes & Noble can set up retail stores abroad and create an experience unmatched by any other. By operating globally, Barnes & Noble can also benefit from location economies, greater cost economies, and earn a higher return.
Leadership and motivation at Barnes & Noble
In 2013 following the departure of William Lynch, Michael Huseby was named CEO. Before being appointed CEO, Huseby was in charge of the digital division, Nook Media. Following Huseby, Ronald Boire was appointed CEO, who departed one year later and was replaced by Demos Parneros. Parneros was fired in 2018 for violating company policies and proceeded to file a lawsuit against Barnes & Noble claiming wrongful termination.
In a time where the retail market is changing, and Barnes & Noble is in desperate need for direction, a constant change in leaders who come in with a big plan and leave shortly after leaves the company with no direction. Even managers who are responsible for dozens of different locations say that they get no support from the head office. However, this change in leadership may not be happening without cause. According to Parneros, the constant change in leadership and declining sales revenue are both because of the founder, Leonardo Riggio. In his lawsuit, Mr. Parneros talks about failing company leadership, incompetency, and internal fights amongst the company. The company's founder already has a reputation for being temperamental and unwilling to cede power, given by the fact that he has been pushing retirement plans and has also said that he is the constant leader in the company and is willing to step in as CEO anytime. While his leadership is valued and he is responsible for building up the company, according to various news articles, he is unable to adapt to the changing retail market caused by new technology. When he held a private meeting with publishers, he discussed opening new stores with smaller footprints as a way to grow and move forward. However, in a digital world where purchasing things online is fast and easy, it is crucial for Barnes & Noble to change its existing stores and website rather than opening new stores. Barnes & Noble's NOOK was unable to compete and has been creating losses, year after year. Their website was also not performing up to expectations. In a world where people listen to music from an app and watch movies online, Barnes & Noble still has section dedicated to CDs and DVDs. Despite all these, Riggio still believes the company should open new stores to grow instead of fix issues in their preexisting stores and products.
In addition to a lack of stable leadership and direction, 1800 experienced employees have also lost their jobs due to numerous stores being shut down in an attempt to cut costs. This leaves employees without any job security as they are unsure about whether their store will be closed and they will be left unemployed. This leaves employees heavily demotivated and directionless. While Barnes & Noble prides itself in providing excellent customer service and a top-notch experience, according to an article on Forbes, in a visit to the Barnes & Noble store in New York, there were several unmanned sections in the store, yoga mats and other items were displayed in the NOOK area and alongside books were mismatched merchandise such as backpacks and diffuser sets, making it difficult for the customer to even find what they were looking for, let alone have a pleasant experience with great customer care.
In June of 2019, a significant change happened in Barnes & Noble's leadership when it was acquired by the hedge fund Elliott Advisors for $638 million, and James Daunt was named CEO. Elliott Advisors also own the British bookstore chain Waterstones, and it is hoped that James Daunt who is known for rescuing Waterstones from near bankruptcy can also manage to increase Barnes & Noble's sales and grow Barnes & Noble. The strategy that Waterstones pursued was allowing individual Waterstones booksellers to tailor each store to the local community. Mr. Daunt says he plans to use a similar strategy in the case of Barnes & Noble.
Barnes & Noble operates in two segments, Barnes & Noble retail and NOOK. Barnes & Noble also created a separate company called Barnes & Noble Education which owns Barnes & Noble College, a chain of college bookstores that operate on campuses. Barnes & Noble Education is a leading operator of college bookstores, operating 773 across the country and serving more than 6 million people.
Its product NOOK operates in a market with high growth rate and has a low relative market share making it a question mark. Its chain of retail stores, on the other hand, operates in a market with low growth rate, and it has a high relative market share making them cash cows.
While NOOK is currently losing money, since it does operate in a market with high growth potential, investing into developing it further and creating features and apps that match or even surpass those of Amazon Kindle can boost its sales and relative market share turning it into a profit-making star. However, in order to improve the functions of NOOK, Barnes & Noble will need to invest in research and development and focus on developing its online presence rather than expanding its retail stores.
For its retail stores, while it currently has a high market share, their number of stores have been continuously declining, while the number of other independent bookstores has been rising, this means that their market share is declining. Since with the advent of online markets and e-books, the market growth rate for retail bookstores fell, if left without any change, the Barnes & Noble retail stores will change from cash cows to dogs.
In order to maintain their market share in retail bookstores, Barnes & Noble should focus on developing the customer experience in their existing stores and not solely on opening new stores. Improving the customer experience includes changing the product placement in the store, what products are offered, the setup of the store, and additional services that are provided in the store. For example, instead of offering the standard set of toys, merchandise and books across all Barnes & Noble stores, they should tailor the books they offer and the experience they provide to the locality in which the store is based in, making the experience more personal and hence differentiating it from the standard experience online shopping offers to everyone. Since independent stores are thriving and increasing in numbers, having an essence of the locality in the store must definitely be adding to the sales.
Barnes & Noble should also consider removing some products from their shelves such as DVDs and CDs, that few people purchase today. The company should also focus on specializing in the sale of products only related to books and reading rather than selling products like yoga mats and Frisbees.
So just promoting NOOK with its current features is bound to create losses and the lack of personalization in the retail stores is also leading to losses, hence in order to turn NOOK into a star, new features must be added and improvements to the software must be made, and in order to prevent the retail stores from becoming dogs, the stores must be tailored to each locality and the preferences of the population which lives there.
Product position map
A positioning map based on price and accessibility shows the differing views customers have on Barnes & Noble and its competitors. Compared to Amazon, shopping at Barnes & Noble requires more time and is more expensive, this dictates that it is targeting a demographic which has more leisure time as well as money. Amazon, on the other hand, targets readers that are always on the go, evident by their ownership of Audible. An app which reads books aloud. And without the need to drive to a retail store and the constant discounts Amazon has, it also targets readers that cannot afford Barnes & Noble's steeper prices. Since Amazon has the option of delivering on the same day and has a much more extensive selection, it makes ordering books online more convenient and accessible. However, Barnes & Noble targets readers who are looking to enjoy the experience of reading in a quiet place amongst rows of books and also gives readers the opportunity to scan through the blurbs of hundreds of books before settling on one. It also offers readers the chance to start reading the book before they decide to purchase it.
However, the store layout that Barnes & Noble has been following is far from creating the cozy environment they are trying to create, which is one of the plausible reasons for a decline in sales. Few readers now come to enjoy the store as the stores have adopted a minimalist set up. The new stores feature shelves of books and other goods with a few chairs strewn around but not the comfortable couches and bean bags that old stores used to present. This is evident by the image below, where there are floors filled with shelves of books but nowhere to sit or read the books.
New Barnes and Noble store
With the free WIFI all Starbucks stores provide, they are often full of people working, having a meeting, or people typing away on their computers. It is rarely a place people can be found leisurely reading a book. Hence, while Barnes & Noble tries to differentiate itself from its online competitor through the in house experience it provides, by standardizing its stores to a minimalist one and introducing an in house Starbucks, it took away from the experience it aimed to provide. Instead of providing a place to relax and comfortably enjoy a book, it offered one where the only differentiating factor between itself and its online competitor was that people could physically see the book in the store whereas people only saw a picture online.
In terms of where the other independent retail stores stand, while they have lower accessibility and higher prices than Barnes & Noble, each store has individuality. Visiting a small indie bookstore at the corner of a street provides a much nicer experience to read than visiting a large standardized chain store such as Barnes & Noble.
So customers who preferred to read on the go through devices such as Amazon Kindle or the convenience of shopping for a book while they waited for something else, switched to Amazon, leaving Barnes & Noble with reduced sales. Since Barnes & Noble also stopped providing the comfortable reading environment it once used to, people who prefer to enjoy the ambiance of the bookstore and to read it in the store, switched to indie bookstores that were more tailored to the local customers. Hence Barnes & Noble lost more of its frequent readers to indie stores, leading to a further decline in their sales.
Kahn Retailing Success Matrix:
This matrix is an analytical tool developed by a Wharton marketing professor, Barbara Kahn. It determines what qualities businesses possess and categorizes the most successful retailing strategies today. The four success quadrants in this matrix are product benefits or value for customers, increased pleasure when visiting the retailer, take away the pain for customers, and a frictionless experience for customers. According to Kahn, to be successful, a retailer not only must show strength in all the four quadrants but also be the best in one of the four. Barnes & Noble, however, has not been able to be the best in any of the quadrants. While they have attractive prices, a good product selection, a satisfying customer experience, and an online presence, they are not the best in any of those four things. When it comes taking away pain for customers and creating a frictionless experience, Barnes & Noble creates it only to a certain extent. Barnes & Noble's main product is retail stores, but when it comes to a painless experience, Amazon makes it a much easier one. For example, when shopping online, customers simply have to search the name of the book, and they can see whether it's available and how long shipping will take. In a retail store, however, they either need to walk through shelves of books or find an employee for help. This makes online shopping a far more painless experience for those customers that already know what book they want to get. While Barnes & Noble does have its online website, Amazon has a faster shipping time as well as a better user interface. Amazon also recommends books based on previous searches, making the recommendations tailored to an individual. Hence, when it comes to a painless and frictionless experience, Amazon is better than brick and mortar stores such as Barnes & Noble and has consequently been successful. Barnes & Noble still, however, can be the best in providing benefits for a product or a pleasurable customer experience. But when it comes to experience, while Barnes & Noble offers a pleasant experience, in small indie stores the customer often receives more attention due to the small size, the setup of the stores make them more comfortable to enjoy a book, and the owner stocks books based on the locals' tastes and preferences. This means that the large number and size of the stores are not allowing Barnes & Noble to be the best in customer experience either. In terms of low prices, Barnes & Noble again loses out to Amazon, as they provide continuous discounts, free shipping and even cashback options for when customers pay with a specific type of credit card. Barnes & Noble cannot afford to offer huge discounts like Amazon as running a physical retail store is more expensive than storing them in a warehouse.
Based on this matrix, Barnes & Noble's sales revenue has been dropping not only due to a changing leadership but also because of their inability to be the best when it comes to any of the four success quadrants.
In conclusion, changing leadership has played a small role in the decline of Barnes & Noble's sales revenue. While changing leadership has left the company without guidance and led to employee demotivation, the extent of its impact is small, and numerous other factors have led to the declining revenue. These include a change in customer trends towards online shopping, an increasing number of retail stores, and changing customer loyalty.
Additionally, Barnes & Noble's tie-up with Starbucks and standardization of stores nationwide also played a role in the declining revenue as they reduced the customer pleasure in coming to a bookstore. Instead of typing with Starbucks, Barnes & Noble should to tie up with local cafes in various locations and also focus on reducing the size of their stores and focus on providing a personal experience and stocking books that are suited to local preferences.
Furthermore, by selling multiple products unrelated to books, Barnes & Noble took away from the cozy bookstore image it was trying to portray and instead became a store like Walmart and Target that sell products ranging from clothes to medication. This led to a decline in sales because it diverted from Barnes & Noble's selling point and the other stores offer a much more extensive selection of products making it unnecessary for customers to shop at Barnes & Noble.
The inability of Barnes & Noble to specialize in one thing and be the best at it also led to the decline in its sales as focusing on the online market and retail market and not being the best in either, led it to losing customers the online giant, Amazon, and small independent bookstores.
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