Barnes and Noble Case Study
Management Project 10th of december 2010 History In 1873, Charles Barnes opened a book-printing business in the USA.The first bookstore was set up by his son, William, in partnership with G.Clifford Noble, in 1917 in New York and it is the advent of Barnes and Noble.
In 1932, at the height of the Great Depression, the bookstore was moved to its current location on Fifth Avenue. Barnes & Noble was acquired by Leonard Riggio in 1971, who oversaw the growth of the business. Leonard Riggio, the company’s chairman, began his bookselling career while attending New York University in the early 1960s.
Working as a clerk in the university bookstore, he became convinced that he could do a better job serving students, and he opened a competing store of his own. With a small investment, Mr. Riggio established the Student Book Exchange (SBX) in Manhattan’s Greenwich Village in 1965. The store quickly became one of New York’s finest bookstores, known for its knowledgeable staff, wide selection and great service. In 1974, Barnes & Noble became the first bookstore to advertise on television.
In 1975, the company became the first bookseller in America to discount books, by selling New York Times best-selling titles at 40% off the publishers’ list price. During the 1970s and 1980s, Barnes & Noble opened smaller discount stores, which were eventually phased out in favor of larger stores. They also began to publish their own books to be sold to mail-order customers, enabling them mail-order to reach new customers nationwide through mail-order catalogues. In 1979 Barnes & Noble acquired a chain of retail stores called Bookmasters, and then bought up Marboro Books Inc. , a remainder company with discount retail outlets.
Barnes & Noble continued to expand throughout the 1980s, and in 1987, the company made its largest acquisition when it purchased B. Dalton Bookseller from Dayton Hudson. This acquisition of 797 retail bookstores thrust the company onto the national scene, making Barnes & Noble a nationwide retailer overnight and the second-largest bookseller in America. The company also acquired Doubleday Book Shops from the Bertelsmann Company and the rights to the Scribner’s bookstore trade name from Macmillan. Barnes & Noble purchased BookStop, a company operating discount book superstores in Texas, in 1989.
This acquisition gave the company key insights into the ingredients behind a successful superstore strategy, from real estate to operations to marketing and merchandising. In the late 1980s, Barnes & Noble tested selling books online in an early generation venue called Trintex, a joint venture with IBM. In the early 1990s, the company refined its superstore concept and established the modern generation of Barnes & Noble superstores, which today represent over 96 percent of their retail sales. Barnes & Noble became a publicly traded company in 1993, listed in New York Stock Exchange.
In the mid-1990s, it sold books on CompuServe and later opened a full-fledged book superstore on America Online in March 1997. Before Barnes & Noble created its web site, it sold books directly to customers through mail-order catalogs. It first began selling books online in the late 1980s, but the company’s website was not launched until May 1997. According to the site, it now carries over 1 million titles, as well as a vast selection of music CDs and DVDs. (5) In the beginning of the millenium the company has made two acquisitions that expanded its publishing capability. * In 2001, Barnes & Noble purchased SparkNotes. om, a leading study aids website, offering free online access to literature notes and more than 1,000 study guides on everything from literature to chemistry to computer science. SparkNotes converted its top study guides into print publications, and they have rapidly become bestsellers. * In 2003, Barnes & Noble purchased Sterling Publishing. For 60 years, Sterling has been one of the world’s leading publishers of non-fiction books. Sterling strives to publish high-quality books that educate, entertain and enrich the lives of their readers. In March 2009, Barnes ; Noble acquired Fictionwise, a leader in the eBook marketplace.
Headquartered in New Jersey, Fictionwise was founded in 2000 by Steve and Scott Pendergrast. In July 2009, Barnes ; Noble launched the world’s largest eBookstore as part of its overall digital strategy. In October 2009, Barnes & Noble introduced Nook™, the world’s most advanced eBook Reader. It was awarded as the Best New Gadget of 2009 in January 2010. Institutional structure Stakeholders A stakeholder is defined as “an individual or group with an interest in the success of an organization in delivering intended results and maintaining the viability of the organization’s products and services. Analyzing the economic interactions of Barnes ; Noble closely, it can be seen that there is a great variety of internal as well as external stakeholders taking part in the economic and financial decision making of the company as a whole. Internal core stakeholders of Barnes ; Noble first of all include its 40,000 nationwide employees, which contribute to the economic functioning of the company by their direct interaction with customers in Barnes ; Noble’s 720 stores and 636 college bookstores.
Also they are likely to contribute directly with their ideas, creativity and expertise. Their expectancies can be identified as job security, financial compensation of their contributions in terms of a salary, esteem, pensions, extended involvement in profit and a health care insurance, as well as a pleasant working atmosphere. Further internal core stakeholders of Barnes ; Noble, who are vital for its business making through their contributions of not only risk capital, but also of ideas and control, are its various shareholders.
The expected reward of shareholders concerns capital gain in terms of dividends or a rising stock price, which usually is obtained through sustainable economic growth and a reasonable business strategy of Barnes ; Noble. Besides internal stakeholders, there are also many external forces and groups which indirectly influence the decision making of Barnes ; Noble. Especially competitors play an important role, as their decision-making might directly influence or initiate changes concerning Barnes ; Noble’ operating markets.
Besides its fundamental core business, which concerns selling books through its 720 local bookstores in all 50 States of the USA, Barnes ; Noble’s online appearance, www. barnesandnoble. com, has gained on importance over the last years. Especially this sector is highly competitive as big players such as Amazon. com Inc. dominate the market. Possible interactions amongst competitors concern eventual collaborations in innovation. Another absolutely important group with respect of Barnes ; Noble’s stakeholders are its clients. Their contributions to the company concern not nly purchases but also loyalty and most importantly feedback, which can be used to adjust Barnes ; Noble’s business plan depending on consumer preferences. The expectations of customers include quality, special offers and, in case of the book market Barnes ; Noble operates in, a broad variety of books available directly on demand. In a more general sense, also the American government takes part in Barnes ; Noble, as it ensures a fair competition in the market through regulations and a framework of rules which has to be accepted by not only Barnes ; Noble but also by all its competitors.
Rewards, which are expected by the government, include tax payments, employment, and economic growth. Also banks are part of Barnes ; Noble’ shareholders, as they provide loan capital upon request as well as advisory in exchange for interest and mortgages. However, as Barnes ; Noble rents most of its stores, there has not been any significant need of loan capitals over the last decades. Ownership Structure The ownership structure of Barnes ; Noble is determined and ranked by the amounts of shares owned by a certain individual or group.
The assembly of shareholders is therefore the most important event in terms of power and decision making for Barnes ; Noble, as it is symbolizes the top entity in the hierarchy of power distribution. First of all, 49% of the total available Barnes ; Noble’s shares are in the possession of Insiders and the Top-5-Percent Owners. The most significant position, equivalent to 27. 8% of the total distributed shares, is held by Barnes ; Noble’s chairman Leonard Riggio, as it can be seen in the underneath graph. Also the American business magnate Ronald Burkle is heavily invested in Barnes ; Noble with roughly 18. % of Barnes ; Noble shares in the possession of his Investment firm Yacaipa Cos. Another 49% of total Barnes ; Noble’s shares are held by Institutional ; Mutual Fund Owners, such as Aletheia Research ; Management Inc. which holds 15 % on Barnes ; Noble as seen in the underneath graph. The total number of Institutions holding Barnes ; Noble’s shares was 161 in June 2010. Governance Structure and its Mechanism Barnes ; Noble governance structure is equivalent to the standard American governance model: the assembly of shareholders elects the board of directors.
Then, it is the task of the board of directors to successfully control Barnes ; Noble’s top managers (the executive committee) according to the expectations and conclusions of the shareholders and the board of directors. Therefore, the top managers are the ones who effectively control the daily business of Barnes ; Noble and who give feedback to upper entities upon developments. The underneath model summarizes the simple interconnection of Barnes ; Noble’s managerial entities: Assembly of Shareholders Board of Directors Top Managers Members of the Board of Directors Barnes ; Noble can be seen in the underneath diagram:
It can be seen that the chairman Leonard Riggio together with his son Stephen Riggio, controls the Board of Directors, whereas William J. Lynch, /as the CEO, is in charge of the executive committee of Barnes ; Noble. The members who are listed as “Director” are so called independent directors, who worked for other companies over the last years and who contribute mainly with their experience to the overall decision making. The power within the Executive Committee is distributed between three major committees, which are dealing with different areas of Barnes ; Noble economic functioning: The Audit Committee, which is in charge of assuring the integrity and reliability of the ? nancial records and the protection of assets though internal control as well as the external control through an annual independent report of BDO Seidman. -The Nominating Committee, which controls the composition of the members through recommending and selecting qualified individuals to the full board in order to elect them as new members. -The Corporate Governance Committee, dealing with the overall economic efficiency of Barnes ; Noble, as well as with the distribution of rewards for employees.
Core Institutional Goals Core institutional goals of Barnes ; Noble describe the overall strategy of the Board of Directors, to be carried out by the Executive Board. Primarily, Barnes ; Noble wants to become the biggest bookseller in the United States and therefore increase its market share. Also Barnes ; Noble wants to expand its product line by not only focusing on book sales, but also by successfully selling its eBook Reader Nook. Even though the expansion on international markets was already under discussion, this is not yet part of its core objectives.
Also Barnes ; Noble wants to invest in restructuring its stores in order to make the stay at a Barnes ; Noble Book Store an experience and thus increase its loyal customer base. Interaction of Elements The interconnection of the mentioned elements is vital for the understanding of the functioning of not only Barnes ; Noble but of every company. Metaphorically it can well be compared to the mechanism of a automatic watch – if one element is missing or separated from the others, the whole mechanism will not work.
Despite their different contributions and expectations, all stakeholders together form the base of the company Barnes ; Noble. Essentially it is the interaction of provided capital, a business plan and employees, which forms the first preliminary framework of a company. However, power within a company has to be distributed, as only a structured hierarchy amongst employees ensures an efficient functioning of all sectors. Therefore a governance structure has to be developed in order to distribute tasks effectively.
In order to be able to plan ahead and give investors an outlook in the potential future, institutional goals have to be stated. Thus, all these core elements are absolutely vital for not only Barnes ; Noble but for all companies in order to successfully compete in their market environment. Institutional Components influencing the Financial Performance Having analyzed the ownership structure of Barnes ; Noble, it can be seen that Leonard Riggios amount of shares owned combined with Ronald Burkles proportion of shares together sum up to almost 50 % of the total shares in the market.
Therefore the entire governance structure mechanism is heavily dependent on their, eventually subjective, opinions, which makes the mechanism inefficient. Even though this is a very particular observation, I personally think it might be of significant importance, as the poor performance of the organization in my opinion is mainly due to a lack of innovation. As the founder and chairman Riggio is said to be a very conservative shareholder, he might hinder Barnes ; Noble to modernize as well as to eventually readjust its institutional goals.
Corporate strategy The Company’s principal business is the sale of trade books (generally hardcover and paperback consumer titles, mass market paperbacks, children’s books, eBooks and other digital content, eReaders and related accessories, bargain books, magazines, gifts, cafe products and services, music and movies direct to customers through its bookstores or through its subsidiary Barnes ; Noble. com.
In October 2009, Barnes ; Noble also launched NOOK™, the Company’s proprietary eReader that the firm considers the world’s most advanced eBook reader, because “it features groundbreaking lending technology, a color touchscreen and lets readers download books in seconds”. In addition Barnes ; Noble has expanded its approach to bookselling and the products it offers through its self-publishing program and through its Sterling Publishing and through the acquisition of SparkNotes.
The company publishes over 500 titles annually, under a variety of imprints including Sterling, Sterling Children’s Books and Barnes ; Noble Classics. In 2009, the Company also acquired Fictionwise, Inc. (Fictionwise), a leader in the eBook marketplace, enabling the launch of one of the company’s eBookstore. Finally, as a result of the acquisition of B;N College (2009), the Company sells textbooks and course-related materials, emblematic apparel and gifts, trade books, school and dorm supplies, and convenience and cafe items on college and university campuses.
B;N College sales account for approximately 14% of the Company’s fiscal 2010 sales. Products and Services Because Barnes ; Noble retail business is very complex, a deeper analysis is crucial to understand its main features: Since 1997 Barnes ; Noble has started redesigning its position in the business from a store-based model to a multichannel model centered in internet and digital commerce by launching its website barnesandnoble. om, but the biggest step forward has been done in July 2009 with the opening of its Ebookstore and digital newsstand, which now allows customers to purchase over one million eBooks, electronic newspapers and magazines. Barnes ; Noble’s eBookstore is available on a wide range of digital platforms, including iPad™, iPhone , iPod touch and several smartphones, as well as most laptops or desktop computers. In Barnes ; Noble retail stores the company offers a huge selection of books, ranging from 20,000 to 200,000 titles.
Complementing this extensive on-site selection, all Barnes ; Noble stores provide customers with access to the millions of books available to online shoppers at Barnes ; Noble. com while offering an option to have the book sent to the store or shipped directly to the customer. The online channel also offers the supplemental opportunity to buy not only common hard covers but also out-of-print, rare and used books. Moreover, many of the Barnes ; Noble stores have music/DVD/BluRay departments that typically stock over 20,000 titles.
The Company’s DVD and BluRay selection is focused on foreign films, documentaries and episodic TV shows. The music selection is focused on classical music, opera, jazz, blues and pop rock. The music department features RedDotNet, an advanced listening station technology that is connected to the Company’s online electronic music catalog and enables customers to listen to any compact disc in the store, sampling up to 300,000 music titles using scanner technology.
In every store it is also possible to find an Home ; Gift section that offers items for the office and electronics and also Toys ; Games and PC ; Video Games departments with a selection of thousands of titles as well as consoles, accessories and strategy guides. Many stores are also have some cafes inside that offer costumers Starbucks beverages, and other products such as candies and sandwiches. Although the cafes are owned and operated by Barnes ; Noble, servers follow Starbucks’ standards in beverage preparation.
From 2004 all the stores offer a free Wi-Fi access using the AT&T FreedomLink network. Horizontal and Vertical Boundaries: While the company has a complete control on sales and hence has never franchised its retail stores, it has anyway signed many different trading agreements with third parties concerning purchases of most of the products sold, manufacturing, logistics and IT complements with the objective to reduce its operating costs. Below the most important are enlisted: NOOK™, the Company’s eBook reader, and other Company products are manufactured by a third-party manufacturer outside the United States and Barnes & Noble relies on components provided from a number of different manufacturers both within and outside the United States. Many of these manufacturers are concentrated in geographic areas outside the United States.. Barnes & Noble relies also on third-party digital content and applications. * The company is provided with national freight distribution, including trucking services by Argix Direct Inc. The company’s B&N Retail segment purchases physical books from over 1,700 publishers and over 50 wholesalers or distributors. Barnes & Noble also acquires rights to distribute digital content from publishers and distributes the content on Barnes & Noble. com. * The company uses Intel-based server technology in a fully redundant configuration to power its website, which is hosted in two locations. At these locations, the company maintains computers that store its web pages in electronic form and transmits them to requesting users (known as hosting).
The Company utilizes two hosting locations. One location is hosted internally by the company and the other is maintained by a third-party hosting vendor. Instead, the company decided to invest in the purchasing of two huge distribution centers: one in Monroe Township, New Jersey, which ships merchandise to stores throughout the country and to online customers and one in Reno, Nevada, which is used to facilitate distribution to stores and online customers in the western United States.
The company also owns another distribution center capacity for facilitating sales by Sterling Publishing to third parties. This investment has clearly enabled the company to source an increasingly larger percentage of its inventory through its own distribution centers, resulting in increased direct buying from publishers rather than wholesalers. Greater volume through the company’s own distribution centers makes it possible to lower distribution costs per unit, to increase both inventory turns and product margins.
This has also led to improved just-in-time deliveries to stores and the ability to offer “Fast&Free Delivery” through its website and for in-store orders placed by customers for home delivery. The improvement in technologies and the changes in culture and society are making books obsolete goods whose demand is getting lower and lower, this reality forced an institution in book retailing like Barnes and Noble to change its strategy and to concentrate in new markets such as e-books production and selling as well as e-book readers manufacturing.
This change in the course of action also drove the company to transform its superstores into community centers that host the most important social events as well as to turn into a multichannel distribution company by strengthening its position in the e-commerce industry. These improvements have made Barnes & Noble the only enterprise that nowadays offers readers the option of store visits, e-Commerce, and digital delivery of books to Barnes & Noble-branded devices or other devices of their choosing.
The company also makes big effort in marketing and merchandising campaigns in order to drive traffic to both its stores and website: at the center of this program is Barnes & Noble. com, which receives over 450 million visits annually and most of all leverages the power of the Barnes & Noble brand by offering online customers a premier destination for all the products sold by the company. In this way, Barnes & Noble. com serves as both the Company’s direct-to-home delivery service and as an important broadcast channel and advertising medium for the Barnes & Noble brand.
Geographical scope From the point of view of the geographical scope, the aim of B&N has always been to collocate its retail stores and its college stores only in the USA in order to gain the leadership in the book-retailing market of the country. The firm has reached its goal thanks to its huge number of retail stores (720 located in all the 50 states plus the District of Columbia and 637 college stores) and has still no plans to open its stores anywhere else. Concerning the e-commerce B&N hasn’t instead created any geographical boundaries: in the USA b&n. om has a consolidated power that is still overcome just by Amazon. com whereas in Europe the firm is trying to gain shares in the market especially through a joint venture created in October, 1998, with the German publishing giant Bertelsmann AG. The purposes of this venture are mainly two: Bertelsmann wants to compete with Amazon. com in the U. S, while Barnes & Noble expects its partnership with Bertelsmann to help it expand into European markets. Organizational structure David Deason V. P. of Development Barnes & Noble, Inc.
Chris Troia Chief Information Officer Barnes & Noble, Inc. Alan Kahn President of Barnes & Noble Publishing Group Leonard Riggio Founder and Chairman Barnes & Noble, Inc. William F. Duffy Executive V. P. of Distribution and Logistics Barnes & Noble, Inc. . Allen Lindstrom Control Allen W. Lindstrom V. P. , Corporate Controller Barnes & Noble, Inc. William J. Lynch Chief Executive Officer Barnes & Noble, Inc. Andy Milevoj Manager of Investor Relations Joseph Lombardi
Chief Financial Officer Barnes & Noble, Inc Jaime Carey Chief Merchandising Officer Barnes & Noble, Inc. Mary Ellen Keating Senior V. P. of Corporate Communications and Public Affairs Barnes & Noble, Inc. Stephen Riggio Vice Chairman Barnes & Noble, Inc. Mitchell S. Klipper Chief Executive Officer Barnes & Noble Retail Group Barnes & Noble, Inc. Michelle Smith V. P. of Human Resources Barnes & Noble, Inc. Mark Bottini V. P. and Director of Stores Barnes & Noble, Inc. Marcus E. Leaver President Sterling Publishing
There are no direct information about the organizational structure of the firm, but by looking at the chart it is quite clear that the company is divided in several functions that deal with both the two main operating segments: B&N Retail and B&N College; anyway the Company board of directors has decided to treat these two businesses as independent from one another, considering the manner in which the business is managed (focusing on the financial information distributed) and the manner in which its chief operating decision maker interacts with other members of management.
The company has seasoned management teams for its digital business and retail stores, including those for real estate, merchandising and store operations. According to its main strategy, the Company management team employs exclusively highly skilled professional with both media expertise and supply chain management skills in order to guarantee a positive customer’s experience regardless the preference for either physical or digital products.
Field management includes regional directors and district managers supervising multiple store locations: Each store generally employs a store manager, two assistant store managers, a cafe manager and approximately 50 full and part-time booksellers. Many Barnes & Noble stores also employ a full-time community relations manager.
Field management for all of the company’s bookstores, including regional directors, district managers and store managers, participate in an incentive program tied to store productivity. The company believes that the compensation of its field management is competitive with that offered by other specialty retailers of comparable size. Store managers participate in annual merchandising conferences, and district managers participate in semi-annual training and merchandising conferences.
Store managers are generally responsible for training other booksellers and employees in accordance with detailed procedures and guidelines prescribed by the Company utilizing a blended learning approach, including on-the job training, e-learning, facilitator-led training and training aids available at each bookstore and for adjusting the buyers’ selection to the interests, lifestyle and demands of the store’s local customers.
Organizational Culture Since its foundation, the Firm has been trying to reach mainly one aim: to make its stores centers and active parts of the community life, places where people can meet, interact with the others, feel at ease and share their common passion for books.
To achieve this goal the Company firstly has built imposing bookstores in highly visible areas open seven days a week, secondly has focused on creating a warm and cozy environment with ample public spaces, comfortable settings, including lounge chairs and reading tables, a cafe, public restrooms and also children playgrounds, thirdly has added a calendar of ongoing events, including author appearances and children’s activities and also supports communities through efforts on behalf of local non-profit organizations that focus on literacy, the arts or K-12 education.
As well as its stores, also the website reflects the efforts made by the company to offer a pleasant shopping experience: it is easy to browse thanks to a clear site map and a useful search bar and moreover is it organized in order to show to the visitors all the ranges of products and most of all the special offers. It is common knowledge that the artifacts are the direct expressions of some values that every company considers crucial and strives to teach to all the employees, from just a superficial analysis of the firm some of them appear quiet clearly: firstly the importance of quality and customers’ satisfaction.
But what is considered absolutely vital for the effectiveness of the firm’s performance it’s both the collaboration among colleagues that can be maintained and strengthened by respecting, supporting and helping each other and the alignment with Barnes and Noble commitment and ethics. As it has already been said, the company has always believed that by concentrating its efforts on becoming a community institution and by satisfying in every aspect the customers it would encourage customer loyalty, word-of-mouth publicity and media coverage and it would have a successful and effective performance.
This strategy has clearly worked and hence allowed the firm not to bother too much on competitors’ strategies and become anyway a leader in the book retailing market and one of the most powerful firms in the e-Commerce field. It is evident that the stores haven’t been created to be considered Just as dealers: the relationship that the customers establish with the company is rather more complex: per excellence books- buyers are hesitant, but in B&N stores they have the chance not only to be helped by highly skilled booksellers but also to feel at ease in special relax areas where they can peruse a book over some coffee.
Also analyzing the company strategy in the e-Commerce field, the satisfaction of the customer is still the unique priority. The exploitation of the well furnished distribution centers through fast deliveries to all the USA guarantees an standoffish online service. Punctuality and fast delivery made Barnes & Nobles a leader in the e-Commerce. Competitive strategy Barnes & Noble competes in the book selling industry. The industry can be examined by using the five basic competitive forces.
The threat of new entrants depends on the barriers to entry and the threat of retaliation. There is low capital requirement for the industry, because the books can also be sold online, but the economies of scale is significantly high, because of its large inventories and diverse selection capacity. The book selling industry is a highly competitive market. The company has to compete with e-Commerce businesses (Amazon. com, Apple), mass merchandisers such as Wal- Mart, growing market for electronic books and digital distribution of book content.
Additionally, it has to face a challenge because of specialty retail stores, furthermore, it competes with large bookstores such as Borders and Book-A-Million, as well as smaller bookstores such as Waldenbooks. That is why, the threat of retaliation in the book selling industry is low, because the profitability in the industry is already low due to intense competition. Legal restrictions are low for the e-commerce business and brand loyalty is also low for the industry. All of these factors approve that the barriers to entry for the book selling industry is low.
The suppliers for Barnes&Noble are the third party manufacturers located outside the United States who are the producers of the books and store leasers. The threat of integration for the book manufacturers is low, so their barganing power can not be high also depending on their quantity. Besides, all of Barnes&Noble’s retail stores which are leased premises effects profitability in a very essential way. Its profitability depends on the company’s ability to find the optimum point for its store lease portfolio. number of retail store, store locations, lease terms &conditions). On the other hand the customers’volume of purchase is not that high, but the availability of information is pretty high especially for the Internet. Consequently the bargaining power of customers is high. There are no substitutes for real books except e-books, but Barnes & Noble also exists in that business. Barnes & Noble retail stores primarily compete on the store experience, quality of shopping and the price and availability of the products.
Barnes & Noble’s most powerful competitor is Amazon. com. Amazon. com is the firm that dominates in the online book selling market, as well as web shopping. It has many advantages over Barnes&Noble, such as easy access and a highly secure information system. Also it has a book recommendation system which keeps the information of every customer by collaborative filtering and recommends books depending on the customer’s previous purchases. Unlike Barnes&Noble, Amazon. com does not have a physical bookstore.
The firm has a very small inventory, but Barnes&Noble has to have a large inventory to provide a variety of selection to satisfy customers and it has to pay to the distributor within (at most) 3 months after the purchase which means that the firm has to carry the cost of the inventory for up to four months. This situation creates a disadvantage for Barnes&Noble, against its strong competitor Amazon. com. On the other hand, having many stores can be an advantage, because it reduces the advertising expenses of the firm.
Only online book seller Amazon. com, has to advertise by links from other web sites and it has to have an advanced information technology which can offer individualized recommendations for the customers, billing and shipping systems. Barnes&Noble’s information system is worse than Amazon. com’s but it also has brick and mortar stores which can never face any technical problems that can lock up all of its sales for a period of time. Therefore, these stores have both advantages and disadvantages for the company.
Another specialty that Barnes&Noble has is related to its horizontal boundaries. It majorly sells books but it also sells DVDs, toys, games and music albums. Therefore it does not have a narrow horizontal boundary. So just like Amazon. com it also has to compete with eBay, which is a very popular online auction site. As it can be understood from Amazon. com’s features, it has the market dominance, with the contribution of being the first one in the online book selling market. Still, Barnes&Noble has an advantage over Amazon. om, because Barnes&Noble is a profitable company unlike Amazon. com. It does not have high marketing expenses, because it markets its merchandise by creating a nice atmosphere and opening a coffee shop inside the stores, letting customers have a nice experience which increases their willingness to buy. Nevertheless, Barnes&Noble has to compete with “Borders” which is an international book and music retailer located in United States. Barnes&Noble is the largest bookstore chain in the US, but it still increases the concentration of the industry.
One of the main competitive disadvantages of Barnes&Noble is its high overhead expenses and high cost of production, because the company has more than 1000 stores and 40,000 employees. (Amazon. com has only 7600 employees, and 1600 of them are for book sales) On the other hand, its size allows it to offer some discounts to its customers and lets it have highly diverse selections, which also means that high economies of scale is an important factor for the companies in this industry.
Therefore, another effective competitive strategy of Barnes&Noble is its nationwide discount pricing strategy. The current pricing is 30% off publishers’ suggested retail prices for hardcover bestsellers and 20% off select feature titles in departments such as children’s books and computer books. The Barnes & Noble Member Program offers members greater discounts. For an annual fee of $25, members receive discounts of 40% off publishers’ suggested retail prices on hardcover bestsellers, 20% off adult hardcovers, and 10% off on almost all other merchandise.
These discounts are available to members for purchases made at Barnes&Noble stores. Barnes&Noble. com implemented an “everyday low pricing” model that provides a single, low price for each item site wide for members and non members and enables the Company to offer better value to its customers. Members also receive free express shipping on eligible purchases made on Barnes&Noble. com. In addition, members receive exclusive offers and promotions via direct mail and email. Consequently, the switching cost of the industry gets higher.
Barnes&Noble’s online customer base is a lot lower than Amazon. com’s. Therefore it developed or copied some strategies to overcome this dominance. For example, it made a deal with Microsoft to become “the exclusive book seller” for the book shopping category on the MSN network, which is an imitation strategy, because also Amazon. com has a similar agreement with Microsoft. Also, it sold 50% of its shares to the German Publisher Bertelsmann AG, right after Amazon. com’s similar partnership with it. Barnes&Noble’s main purpose was to grow into European markets.
Besides, Barnes&Noble started to move into other markets such as the sales of dvds, toys and music albums, after Amazon. com. Amazon. com, manages to sell a lot in these areas with no profit, because of its high advertising expenses. So it is pretty useless for Barnes&Noble to copy this strategy of Amazon. com. Since Amazon. com has the dominance for the online book selling industry, only a few consumers prefer Barnes&Noble on its new market, unless it does not make any differentiations about it. Also this situation, prevents both companies to have a significant brand recognition.
To sum up, Barnes&Noble, uses the Wal- Mart strategy to compete in this industry, which includes huge stores, low prices and a sophisticated technology to track its inventory and get rid of the undemanded products from its supply, but this situation can not actually help the firm to raise its profit, because an innovation is needed in this kind of a highly competitive industry. The company needs essential differentiation. Another copycat like strategy of Barnes&Noble was to create Nook (which looks like an imitation of Amazon. om’s Kindle). But this time there was a difference about this copying strategy, the company created an additional e-book software for PC, Mac and iPad and its own content library. With this strategy the company has vertically integrated. (only by a single layer which is content) Moreover, Barnes&Noble, sells content and makes its platform available to IREX and Plastic Logic devices’ users. This stack strategy, brings additional revenue to the firm and also makes the company’s options unavailable for its competitors.
Unfortunately, this strategy is not good enough for the firm to dominate in the market, because scale, efficiency and little differentiations is not enough for a market with many competitors. The increased competition is likely to reduce Barnes&Noble’s sales and profits Finances Consolidated balance sheet of Barnes & Noble Inc. (2010-05-01) (in thousands of USD) Assets| Current Assets| Cash And Cash Equivalents| 60,965| Short Term Investments | -| Net Receivables | 106,576| Inventory | 1,370,111|
Other Current Assets | 181,825| Total Current Assets | 1,719,477| Property, Plant and Equipment | 812,034| Goodwill | 528,541| Intangible Assets | 580,962| Accumulated Amortization | -| Other Assets | 64,672| Deferred Long Term Asset Charges | -| Total Assets | 3,705,686| Liabilities| Current Liabilities| Accounts Payable | 1,624,408| Short/Current Long Term Debt | 100,000| Total Current Liabilities | 1,724,408| Long Term Loans | 260,400| Other Liabilities | 505,903|
Deferred Long Term Liability Charges | 311,607| Minority Interest | 1,550| Total Liabilities | 2,803,868| Stockholders’ Equity| Issued Common Stock ($0. 01 per share)| 89| Retained Earnings | 681,082| Treasury Stock | -1,052,356| Capital Surplus | 1,286,215| Other Stockholder Equity | -13,212| Total Stockholder Equity | 901,818| Total Liabilities + Equity| 3,705,686| Consolidated Income Statement of Barnes ; Noble Inc. (2009/05/02 – 2010/05/01) (in thousands of USD) Total Revenue| 5,810,564| Cost of Revenue| 4,133,819|
Gross Profit| 1,676,745| Operating Expenses| Research Development| -| Selling General and Administrative| 1,392,207| Non Recurring| 3,518| Depreciation and Amortization| 207,774| Earnings Before Interest And Taxes| 73,246| Interest Expense| 28,237| Income Before Tax| 45,009| Income Tax Expense| 8,365| Net Income| 36,644| Preferred Stock And Other Adjustments| -| Net Income Applicable To Common Shares| 36,644| Barnes;Noble Inc. financial ratios of the latest annual report (2009/05/02 – 2010/05/01) Return on equity| 4. 06%| Return on total assets| 1. 1%| Return on sales| 0. 77%| Asset turnover| 1. 57| Current ratio| 0. 99| Quick ratio| 0. 2| Debt/equity ratio*| 2. 2| Interest cover| 1. 29| Cost of capital| 1. 42%| *debt = long term loans + current liabilities Barnes;Noble Inc. financial performance evaluation The profitability of Barnes;Noble Inc. is very and despite it is mainly competing in the retailing business ROE = 4. 06% is unacceptable comparing to the average 5-year ROE=10. 5%. The same tendency can be seen looking at the ROTA which is 2. 7 times lower than the 5-year average.
Company‘s profit margin is even below 1% and this means that Barnes;Noble does not manage to earn enough money but at least they are able to cover all their expenses on time without losses. Low profitability ratios as well as asset turnover can be partly explained that market was facing a sharp decline, which was caused by global financial crisis and even though it did not cause the reduction in sales which actually increased but made larger costs (i. e. interests) which increased more than sales and caused some financial problems for the company.
Barnes;Noble Inc. current ratio is almost 1 and this theoretically allows for the company to cover all their short term financial operations but quick ratio is very low (only 0. 2) and this means that company has much inventory which is about 80% of current assets. This means that company could possibly improve its‘ profitability ratios by increasing sales of the inventory but since Barnes;Noble is in the shrinking market which cannot buy all the goods it is almost impossible to reduce high inventory significantly.
Turning to Barnes;Noble Inc. financial strength ratios situation is a bit better. Company‘s debt/ratio (2. 2) looks quite normal and we can deduce that it exploits all the available financial resources to keep its‘ sustainability as well as possible. On the other hand, interest cover is particularly low (only 1. 29) and since company is facing the shrinking market this can cause trouble in the near future and lead to negative net earnings. On of the factors which allows Barnes;Noble Inc. o have positive net earnings is low cost of capital and this means that average interest rate is 1. 42% and is lower than return on the risk capital. In overall, Barnes;Noble Inc. financial results are not very pleasant and acceptable since company is facing decreasin market there is not much it could do in order to improve its‘ situation: firstly, it should try to reduce their administrative expenses, maybe close less than the average profitable which generates higher costs.
Secondly, it could try to reduce inventory by lowering prices but as I have mentioned before it is a very dfficult task to acomplish since it is facing shrinking market. Finally, it could try to use their cash which even though does not count much of current assets but this could allow company to pay at least part of their debt and increase its‘ liquidity in the short run. Bibliography http://www. google. com/finance http://www. barnesandnobleinc. com/ http://www. fundinguniverse. com/ www. barnesandnoble. com www. maths. tcd. ie/~nora/FT351-3/CS. pdf www. ichnet. org/glossary. htm