Can Barnes & Noble Survive?

Barnes & Noble once played the role of disruptor, leading to the demise of many an independent bookseller. But now the big box book chain is considered a dinosaur, struggling to survive in a rapidly changing retail landscape.

But if the company collapses (as its chief rival, Borders, did in 2011) who is to blame?

While a recent New York Times op-ed argued that lax government policy toward giant corporations has allowed Amazon to take over the book business and made it impossible for Barnes & Noble to compete, experts from Wharton and elsewhere say there are other trends at play. They note that the 633-store chain is incurring losses because it has failed to make good use of its stores to endear itself to book lovers. By consequence, Barnes & Noble has been unable to cash in on a revival in the fortunes of physical bookstores and yielded ground to smaller local shops that have been able to forge deep connections with their customers. In the digital space, meanwhile, Barnes & Noble’s Nook e-reader has lost badly to Amazon’s Kindle.

Wharton marketing professor Thomas Robertson, who is also director of the school’s Jay H. Baker Retailing Center, identified a few important factors that Barnes & Noble or any other retailer could consider. “You have to find ways to reach out to [the millennial generation], and it is about being omni-channel — it has to be a seamless experience,” he said. “Also, if you’re going to reach Gen Z or Gen X, it is all about mobile.”

“You have to find ways to reach out to [the millennial generation], and it is about being omni-channel — it has to be a seamless experience.”–Thomas Robertson

Early Stage Demise

However, all indications are that Barnes & Noble faces an uphill road ahead. In its March 2018 earnings statement, the company posted a 5.3% revenue decline to $1.2 billion and a loss of $63.5 million. Barnes & Noble leadership has talked of a “strategic turnaround plan,” but that hasn’t inspired much hope. “It’s pretty grim,” said Wharton marketing professor Peter Fader. “They’ve tried lots of different things from devices to experiences to broadening the merchandise. Nothing’s working. At this point, they haven’t found that hook to save the business nor have they found the vision or leadership to give people any confidence in it.”

Mark Cohen, director of retail studies at Columbia University Graduate School of Business, also viewed the closure of the chain as an inevitability. “This is late stage demise,” he said. “They were the last man standing in a sense in the traditional brick-and-mortar space, but they just haven’t figured out how to be become relevant. Too little, too late.”

What Went Wrong?

Wharton marketing professor Barbara Kahn assessed Barnes & Noble’s predicament through the “Kahn Retailing Success Matrix,” an analytical tool she has developed to determine whether a business has the fundamentals of what it takes to be successful. The matrix, which is featured in her forthcoming book, The Shopping Revolution: How Successful Retailers Win Customers in an Era of Endless Disruption, has four quadrants that represent key customer values and how retailers could respond to them.

The quadrants represent aspects such as “product benefit,” or the value a customer would get, say, from brands like Nike or Warby Parker; and “increased pleasure” at retailers like Italian foods marketplace Eataly or cosmetics store Sephora. They also represent aspects that “take away the pain” for customers, such as lower prices at Walmart, or an “easy and frictionless” experience, as with Amazon.

According to Kahn, in order to be successful, a retailer has to be good in every one of those quadrants, and then be the best in the business in at least one of them. “Barnes & Noble has been playing catch up in all of these dimensions,” she said. She explained that while the retailer probably has attractive prices, a good selection of books, good stores that offer a satisfying customer experience, and a strong online presence, “the problem is they’re not the best at anything.”

“The problem is they’re not the best at anything.”–Barbara Kahn

Could Barnes & Noble work its way to become a leader in one of Kahn’s retailing matrix quadrants? “The industry is so competitive now that they’re late in doing things that could work,” she said.

According to Ray Wimer, retail practice professor at Syracuse University’s Martin J. Whitman School of Management, the problem with Barnes & Noble is that “with consumers changing their shopping habits, [it hasn’t] found a strategy that can connect with those customers.” Cohen noted that it’s not just millennials that bookstores have to make a connection with, but also older people who are still devoted to physical books and “enjoy the interaction with the staff, and the inventory.”

“The fact is they don’t have any point of relevance,” Cohen said. “It’s a pleasant place to go to grab a cup of coffee. It’s a pleasant place to browse the latest magazines and new releases. But as you would note if you just visited any of their stores, most of the people visiting Barnes & Noble don’t buy anything at Barnes & Noble other than a cup of coffee.”

Cohen took a dim view of the various attempts Barnes & Noble has made in reviving its fortunes. “The biggest problem they have is the ideas that they have mounted and spent money on have not been successful,” he said. He described those as “flash-in-the-pan attempts” such as adding categories or venturing into the blogosphere space. “When all is said and done, this is a legacy platform that just hasn’t managed to make itself relevant in the face of the extraordinary appeal of Amazon.”

“Barnes & Noble increasingly looks like the dinosaur who hangs from the ceiling of the Natural History Museum.”–Mark Cohen

Modeling Amazon and Apple

Amazon and Apple are among those retailers that have evolved much further in what it takes to endear a company to customers, according to Kahn. “Why would you want to buy from a store when it is easier to buy on Amazon? Why would you want to buy there when you get a cheaper price somewhere else?” she asked. “[Barnes & Noble’s] customer experience is OK, but it’s just not worth going out of your way for.” She also noted that while Barnes & Noble has big bookstores, they don’t translate into an intimate or cozy customer experience. The book assortment is also likely to be bigger on Amazon, she added. “The problem is they’re stuck in the middle.”

Kahn noted that Amazon’s physical bookstores are “not these cavernous big stores, so it’s much more of an intimate experience” and they stock curated collections. Here, customers shop using an Amazon app on which they can access varied information on books and get a personalized and customized experience such as differential pricing (for example, if you are an Amazon Prime subscriber), she said. She also offered the example of Apple’s stores as being much more evolved than those of Barnes & Noble. Apple has designed its stores as “community centers” where customers could buy products, get them fixed, learn about new software and so forth, she noted.

However, is Amazon the villain of the story? “It would be really easy to say it is Amazon that drove Barnes & Noble out of business,” said Fader. “I don’t think that’s true. I think it’s Barnes & Noble that [will drive] itself out of business by not adapting to the times and moving with its customers.” He pointed out that Best Buy, the retail electronics chain, has been able to survive and thrive in the face of competition from Amazon with smart strategies.

Cohen also noted that Barnes & Noble has failed to ride the renewed interest in physical books. “There is a tremendous resurgence of local bookstores that’s underway, but these have relevance because they’re coming up out of the ground as green shoots in the communities in which they are appearing and they’re not trying to be all things to all people as Barnes & Noble has always tried to be,” he said. “They’re either picking on a genre or trying to curate an assortment of books that appeals to a local, devoted customer. Barnes & Noble increasingly looks like the dinosaur who hangs from the ceiling of the Natural History Museum.”

“Maybe 20 years from now [Barnes & Noble] be a throwback and people will remember the good old days, but they have to die to be reborn.”–Peter Fader

Boring Retail

The problem with Barnes & Noble is that’s “it’s boring retail,” said Fader, attributing that term to retail innovation guru Steve Dennis. “Not only have these attempts they’ve made not succeeded in terms of devices or services, but just the way that they go about doing things — there’s just no excitement.”

According to Wimer, the problem is that that it’s almost like Barnes & Noble has become “a public library that serves Starbucks coffee.” He noted that retail customers want a personalized experience that Barnes & Noble has not been able to provide. The staff typically isn’t able to make personalized recommendations and have conversation with booklovers, he said. “Barnes & Noble is not that kind of unique experience anymore, giving people the ‘reason why’ to go in and shop, other than [a salesperson] taking you to the book that you’re looking for. There’s really no discussion.”

Wimer said the comment about “boring retail” is telling. “If there’s a really great reason for me to go because I’m connected with the store, I’m connected with the brand, and I’m connected with staff at that store — that really pulls me in,” he said. Some retailers have begun figuring that out, and the smaller among them are quicker and more nimble in latching on to that wisdom, he added.

Revamped Strategies

Even as it has its back against the wall, Barnes & Noble could extract efficiencies on several fronts, according to Robertson. By providing an omni-channel experience, it may not need to carry a large inventory of books, he suggested. If Amazon guarantees delivery within two hours, Barnes & Noble would need an effective response, he noted. “They will have maybe the bestsellers in the store, but anything else you want you could get in a couple of hours,” he said. “It will have to be that way for Barnes & Noble because it is so expensive to maintain inventory of thousands of titles.”

Robertson said Barnes & Noble could also review the store-within-a-store format. For example, the Starbucks outlets within its bookstores made sense two decades ago but may no longer be the best way to draw customers, he noted. He referred to the recent decision by clothing retail chain Kohl’s to host Aldi discount grocery stores within its stores and said that might hold some clues for Barnes & Noble. He also pointed to department stores in China, which are almost all retail concessions where the brands are essentially on leased space.

“So, for Barnes & Noble, you might ask: Are there other concessions that we could bring in?” Robertson asked. “Are there logical things that you could put in Barnes & Noble that would help pay the rent, bring customers in, and [the company would] receive a percentage of the margin from these other brands?” Options there would include products that go well with books, and those that the consumer might view as an advantage, he added.

“It’s almost like Barnes & Noble has become a public library that serves Starbucks coffee, and a lot of people just go in and browse, get their cup of coffee … and then walk away.”–Ray Wimer

The Advantage of College Bookstores

One bright spot Fader saw was in the Barnes & Noble college bookstores division, which continues to be profitable. He said the college bookstores could be separated from the main Barnes & Noble brand “and away from this other dying business that people think of first.”

Cohen pointed out that the college bookstore derives its brand value from the university in which it operates, and not Barnes & Noble. He pointed, for example, to the Barnes & Noble college bookstore at Columbia University. “The people who are shopping in that location are interested in textbooks and Columbia material and sundries; they’re not shopping that location because it’s a Barnes & Noble.”

Fader also said the company’s brand name had “a halo” that could have been used to expand its franchise with other products. It is too late to do that now as its brand equity itself is declining, he added.

Winding Down?

Wimer said he expected Barnes & Noble to close more locations in the next few years as it attempts to reinvent itself. Cohen was not hopeful of a successful turnaround. “I don’t think there’s any possibility that they’re going to come up with anything miraculous, especially in light of the fact that it would inevitably require a change in the presentation scheme in their stores, which would cost a lot of money,” he said. “This is going to be another casualty within the next year or two at most.”

If Barnes & Noble were to close its stores, many of the malls where it is currently located will take the collateral damage. “Lots of these malls will continue to have empty spaces and eventually many of them will fail,” said Cohen. He expected some to find new life as lifestyle centers or to provide opportunities for local bookstores with more reasonable rents.

Wimer noted that many Barnes & Noble stores have large footprints that may have to be divided into smaller spaces to be attractive to other, smaller retailers. Cohen, however, thought that breaking down those current spaces into smaller lots would be economically prohibitive.

Barnes & Noble will be sorely missed by its patrons if it shuts down, said Fader. “Maybe 20 years from now it’ll be a throwback and people will remember the good old days,” he added. “But they have to die to be reborn.”

Fader visualized the brand’s resurgence further down the road. “It is ironic that Barnes & Noble is now seen as this big and bland [entity that] just has no personality, and no street cred when it comes to authentic community-oriented reading,” Fader said. “It will come back. We have to let a generation pass and then it will come back and will start small. Someone will buy the name and attach it to some small local curated thing.”