In Publishers Lunch (paywall), Michael Cader summarizes how B&N management, in an investor’s call, said they would address the challenges: launch a series of tests. Cader writes, “A lot of those tests focus on store layouts, ‘starting with space productivity,’ adjusting categories that are in decline and those that are growing.” That means: look for reduced space in areas of underperformance, including the Nook and music DVDs.
Well, it is finally happening. For several years we’ve been tracking the fate of Barnes and Noble. Long-time readers will recall the financial analysis I provided three years ago that showed B&N was in the midst of a slow death. Now it is certain — unless they can sell to an investor with deep pockets who will restructure and revitalize the chain. There is no guarantee that someone will step up. Motley Fool is skeptical (see below).
What are we to do? First, if you have a relationship with one or more stores and have events there — no problem. Just note we will not be investing any further in growing this relationship, like we tried earlier this year. We are securing ourselves from the possibility of a truck full of returns.
It is very likely the new management will close a bunch of stores and consolidate inventory to be more efficient. This will result in publishers receiving a lot of returns. If the chain is not sold and goes bankrupt, a good number of publishers will likely go out of business too.
We are positioned to weather this. We have curtailed returns for the vast majority of our books with Barnes. A few of you have recently asked if we would flip this flag so you could do signings at Barnes. We will not be flipping that flag anytime soon for anyone. It is too risky!
This past month, Demos Parneros, the CEO of Barnes and Noble, was fired without warning for violating undisclosed company policies. One can only imagine what he did to warrant such treatment.
The company was not performing well — sales down 6% while the industry was growing at a very mature 3% rate. This means Barnes and Noble was going in the wrong direction in what is a fairly healthy book-selling environment. Clearly, if the company is losing when the rest of the industry is winning, they are doing something wrong.
At Sunbury Press, we have definitely experienced miscommunication and a lack of coordination between divisions of Barnes and Noble. Recently, we have entered into a direct relationship for distributing our books with them, avoiding the need to use Ingram as our middle-man. This, on the surface, appeared to be a win-win for both of us, providing more revenue to each. However, when a Barnes and Noble store in Washington state wanted to order copies of our books for a book signing, they contacted the distribution center who then contacted us to order them directly.
“Do you realize your Barnes and Noble Press division is printing these books?” I asked the manager at the distribution center.
“Yes, but we have none in stock,” she said.
“But you sell them online. When an order comes in, you print and ship. Why can’t you do that for your own stores?” I asked.
“… (silence),” was the response.
So, I put the order in for them — to their Barnes and Noble Press division and had the order shipped to their bookstore. It is no wonder they are failing. Their operations leadership sucks! (pardon my French)
On the eBook front, we have been loading our books onto their Nook platform again. Many of you recall we took a hiatus from this due to declining sales. Some of you asked for us to give it another try because you heard from readers who wanted it on that platform. Well, despite loading a couple hundred titles, we have not seen an increase in sales. In fact, the platform appears to be lacking a pulse. We are hoping B&N sells off its eBook capabilities to Kobo or another player in the industry. In the meantime, there is nothing happening here. If we don’t see any movement or a potential sale, we will move on.
Recent news about bookstores has been a mixed bag. Longtime readers of this newsletter know I’ve been on a death watch for Barnes and Noble for a couple years. We’ve recently worked out a direct arrangement with them and are trying to make a go of it, but they are also in an ever weakening position. Recently, it was announced they would be closing eight more stores in the coming year. I wouldn’t be surprised if their eBook business was sold off to Kobo and they get out of this losing business. EBook sales remain flat or down and have plateaued at 20% of all book sales. The vast majority of eBook sales are fiction titles.
While B&N is up and down, The Last Word in Charlotte, North Carolina went bankrupt this past week. While they sold mostly used books and media, they were on our list of independent customers. We’ve noticed a decided slowing in the payments coming from independents of late. Many are more than 90 days past due. We’ve recently sent another round of dunning emails, some going unanswered. I worry if I follow up I will discover a couple more bookstores exiting the business. This bears watching. In a strong economy, to still have business failures in this industry indicates there are structural changes afoot.
And here’s our culprit …. Amazon! We are all very familiar with their global online offerings. In fact, they are about one-third of our business and about half of the overall book trade (Barnes is 17% overall — the only other player over 10%). Amazon recently opened a brick and mortar bookstore in New York City near the site of a former Borders store (boy do I miss those!)
Our news regarding Barnes and Noble has been a mixed bag. First and foremost, the chain had a terrible year in 2017 and is taking some drastic actions this year. Those of you who have been with us for awhile know I’ve been on Barnes and Noble death watch for some time. We’ve just seen ToysRUs file for bankruptcy and plan to liquidate all of its stores. Barnes is similar in that it is also a 1990s-style big box store. They have announced plans to close some stores, reduce the number of employees in the stores, and only open smaller stores in the future. This sounds like the death spiral continues.
But, they remain the largest book chain by far, though they only do less than half of Amazon’s business. Still, we cannot ignore 17% of the marketplace. One in six books is sold through B&N!
At Sunbury Press, we have been losing money when dealing with the chain book trade since early 2017. We have noticed an uptick in returns and a slight decline in new orders. Meanwhile, our sales in other channels have grown thanks to direct sales to readers, direct sales to independent bookstores, and our growing online business. This downturn when dealing with the big chains tells me they are in trouble. We don’t want to be left hanging when they fold — like the dozens of publishers who went out of business when Borders closed and returned millions of dollars in unsold books. We are quietly switching our strategy with Barnes to deal directly with them, rather than through Ingram. Through the direct arrangement, Barnes agrees not to return books. We’ve also “rekindled” our eBook deal with them. Look for many of our books to be available again on the Nook. The main reason I am doing this is I believe this will be sold off — likely to Kobo or Apple and will give us entré onto those platforms in a big way.
As of this month, Sunbury Press has discontinued publishing on the Nook platform. Sales had plummeted to just a couple units per month — hardly worth the trouble. We also suspect a lot of the returns in recent months have been from Barnes & Noble, through our distributor, Ingram. Such a wave of returns preceded the collapse of Borders in 2011.
Below is an article from Jane Friedman’s Hot Sheet …
Barnes & Noble’s fiscal year ended in April, so we have a new set of earnings reports and commentary to share on the chain bookstore’s beleaguered performance in 2017. As our astute readers are aware, B&N’s outlook hasn’t been a rosy one, and their revolving door for CEOs hasn’t helped. (The latest CEO, Demos Parneros, took his position at the helm after a 30-year run at Staples.)
The good news is that B&N met their profit goals; the bad news is that full-year sales were down 6.5 percent from the prior year. Since B&N sales encompass many media, not just books, it’s helpful to look at earnings in the book category alone. Unfortunately, the decline is about the same-6 percent-partly due to lower sales of coloring books and juvenile titles. And they expect the sales decline to continue in 2018.
Bottom line: Always remember that B&N’s performance is not necessarily indicative of overall book retail health. Print book sales as tracked by BookScan in 2017 show that the industry is not suffering the same rate of decline as B&N. Therefore, B&N is losing share to its competitors. With declining revenue, we anticipate B&N may fall victim to the cut-your-way-to-profitability business strategy. Parneros has said a “company-wide simplification process will take out costs.” B&N stock closed last week at $7.50 a share. In July of last year, the stock was trading at around $12.
The Looming Collapse of Barnes and Noble
In recent weeks, I’ve been grousing about returns and their sudden increase at the end of last year. Now, I have a much better understanding of what happened. Barnes & Noble saw comparable store sales plummet over 9% in their stores last year — and experienced a subsequent 7.5% drop in revenue in the next quarter. Nook sales were down 25% in the same period. Not many retailers can take a hit like this and survive for long. Another bad year and the end is near.
We live in one of the most economically vibrant areas in the northeast, yet our Sears was being torn down last week — as was the KMart. HH Gregg was closing its doors, as were a number of other retailers. If anything is clear, brick and mortar retail is suffering — and Barnes and Noble, as great as their stores are, is no exception. (The chart above shows the declines have been ongoing for 4+years.)
Several years ago, not soon after we rebooted Sunbury Press in 2010, Borders Books — an author/independent – friendly chain went out of business. It took with it a number of small to medium-sized publishers who could not absorb the deluge of returns and lost revenue. Barnes is a much larger retailer than Borders ever was. If they would suddenly close up shop, the effect on the publishing industry would be devastating to all but the strongest players.
At Sunbury Press, we have already started taking action to batten-down the hatches before this storm even hits. We have greatly limited the number of new titles automatically receiving return privileges. Some of you have asked about this. At this point in time, it is essential we reduce our exposure to returns from a failing BN. At Sunbury Press, we believe our exposure is the equivalent to one year’s sales sitting in stores that could boomerang back. If, suddenly, several 18 wheelers showed up at the farm with hundreds of pallets of returned books, we’d be out of business – bankrupt. Fortunately, this exposure drops over time, as we do not add to it. This is our goal — to mitigate our risk.
Does this mean the book trade is failing? No. In fact, book sales overall increased last year. Online sales are up and sales at independents are up. Here’s the problem with independents, though. While we absolutely love to support independent bookstores, we can’t tell the distributors to only accept returns from them and not Barnes. So, please tell your independents to order directly from us, and will accept returns.