July 23, 2013

Enough negativity: What does Barnes & Noble have to feel good about?


Volcano? What volcano?

This year, we’ve written quite a bit about Barnes & Noble‘s increasingly uncertain future. For the most part (though we’ve never succumbed to Matt Yglesias‘s “obsolete business in a dying industry” song and dance routine), we’ve focused on the bad: the huge losses, the closing of stores, the catastrophic Nook experiment, the CEO resigning, the fact that they are maybe not that into selling books anymore.

But yesterday The New Yorker‘s James Surowiecki argued that it’s not all doom and gloom for the big box bookstore. And, despite the piece’s “Here’s what’s wrong with the conventional wisdom” angle, it’s not contrarian; and, despite its regrettable headline, “E-books vs. P-books,” it’s quite thoughtful (if not entirely persuasive).

Here’s what Barnes & Noble has going for it, according to Surowiecki:

It’s still pretty good at selling physical books: Its losses came from its Nook-related failures, not its retail operations. In fact, its “retail business still makes good money, and, though its sales fell last year, its profits actually rose” and “The Nook is the only part of the business that’s losing money.”

They don’t have any real national competitors: After Borders bowed out of the book game in 2011, Barnes & Noble hasn’t had to worry about competing with any other chains with physical locations. Of course, competition with Amazon is probably more important than competition with Borders or a Borders-like chain in the present climate, but, as John Tinker told Surowiecki, “In this market, you could actually pick up market share simply because you’re the only major bookseller left.”

Flexible overhead: “B. & N. has generally avoided the expensive, long leases that can drain a retailer’s cash flow; many of its leases are short—which gives it flexibility in terms of moving or downsizing—and, since its stores generate foot traffic (which is good for surrounding stores), it has considerable leverage with landlords.”

No one wants to see it go out of business: “Showrooming,” or seeing a thing before you buy it, is extremely important in the book business—it drives online sales as well—so publishers have an incentive to do what they can to keep Barnes & Noble in business, which gives B & N leverage.

Physical books are not obsolete: The book industry is not the music industry, in part because “the book is an exceptionally good piece of technology—easy to read, portable, durable, and inexpensive.” And, though ebook sales are growing, they’re not growing at a rate that suggests that they’re going to completely take over physical books. After rising at “triple-digit annual rates” between 2009-2011, ebook sales “rose just 44%” last year. “This kind of deceleration in the growth rate isn’t what you’d expect if e-books were going to replace printed books anytime soon,” Surowiecki argues. “In a recent survey by the Codex Group, ninety-seven per cent of people who read e-books said that they were still wedded to print, and only three per cent of frequent book buyers read only digital.”

Of course, Surowiecki doesn’t think that Barnes & Noble is in great shape in every area. He offers these criticisms:

There are plenty of things B. & N. could do better, of course. Its Web site could be sportier. Its stores, publishing people gripe, are too cluttered, often with non-book merchandise, and don’t do a good enough job of showcasing its key product. (The demise of the Nook should help in this regard, since those giant Nook display booths took up a lot of floor space.) It might also be time for the firm to embrace more innovative ways of pricing and selling books; Peter Olson, the former C.E.O. of Random House, has suggested that B. & N. could bundle e-books and print copies, or offer volume discounts. Motivated, personalized customer service would also make a difference. The obvious model here is the experience at Apple’s retail stores. But B. & N. could also look closer to home. Independent bookstores are now thriving, thanks in large part to their close ties to both publishers and customers. “Stores that can help you not just find what you’re looking for but also help you discover books you haven’t heard of are still very valuable to readers,” says Daniel Raff, a management professor at Wharton who’s written an in-depth study of Borders and B. & N. This suggests that, instead of succumbing to the temptation to reinvent itself, B. & N. should focus on something truly radical: being a bookstore.

The last point—about Barnes & Noble doubling-down on selling books instead of rolling the dice on high-margin garbage, is, in my estimation a crucial one. (It’s also one we’ve been making on MobyLives for literally years now.) Barnes & Noble’s situation may not be as dire as it seems—and Surowiecki makes a fairly compelling case that it does still have a lot going for it is compelling. But it’s track record is not particularly heartening. Perhaps, after all the bad news, Barnes & Noble will finally make the right decision and start being a bookstore again.


Alex Shephard is the director of digital media for Melville House, and a former bookseller.