Barnes & Noble's Nook unit runs out of sales steam ahead of spin-off

Barnes & Noble's Nook unit runs out of sales steam ahead of spin-off

Summary: Barnes & Noble was hit with Nook scale and production issues in the first quarter. Does the Nook unit have the core competencies to hold its own as a barrage of 7-inch tablets hit the market?

SHARE:
8

Barnes & Noble made a splash with its Nook, an e-reader meets tablet device, but sales growth appears to be stagnating.

The bookstore retailer reported first quarter Nook revenue, which includes device and digital content sales, of $192 million, up only 0.3 percent from a year ago.

Barnes & Noble also added that it is continuing to work on the Nook unit spin-off with Microsoft. The new company, dubbed Newco for now, is a work in progress. "The company continues to be actively engaged in the formation of Newco and is in the process of implementing the work necessary to complete the Microsoft transaction. The company expects the Microsoft transaction to close this Fall," said Barnes & Noble.

bnnook0821112a

Here's the big question revolving around the Nook: Can Barnes & Noble's Nook unit, even with help from Microsoft, hold its own against the likes of Amazon's Kindle franchise as well as a bevy of 7-inch tablets?

Consider the barrage facing the Nook:

  • Amazon is likely to have a Kindle refresh in the not-too-distant future.
  • Google launched its Nexus 7-inch tablet to strong reviews.
  • Apple is reportedly launching a 7-inch iPad Mini.

The issue here isn't necessarily Barnes & Noble's Nook and ecosystem as much as it is about the cadence of product development. The Nook is launching in the U.K. and that may help the device and Barnes & Noble.

But the reality is that Barnes & Noble and the Nook unit need to move faster. Much faster. Barnes & Noble has done a nice job showcasing the Nook with its retail stores.

As a business case study, the Nook and brick-and-mortar stores of Barnes & Noble illustrate the promise of multi-channel retailing. Every retailer is trying to master the multi-channel approach as they meld online, mobile and physical commerce.

In a statement, Barnes & Noble CEO William Lynch said that the company "continued to see improvement in both our rapidly growing Nook business, which saw digital content sales increase 46% during the quarter." The problem: Barnes & Noble needs more Nook devices in the field so it can push more digital content, but the market is crowded.

For the first quarter, Barnes & Noble noted that Nook device sales "declined for the quarter due to lower average selling prices and production scaling issues surrounding the popular newly launched Glowlight product resulting in unmet demand."

That passage illustrates Barnes & Noble's other challenges. For instance, Barnes & Noble hasn't historically manufactured devices. Scale and production are likely to continue to bite the company.

Overall, Barnes & Noble lost $41 million in its first quarter on sales of $1.45 billion.

Topics: Tablets, Hardware, Mobility

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

8 comments
Log in or register to join the discussion
  • Nook App

    The Barnes & Noble Nook App works great on any laptop or desktop, and a lot of tablets. I suspect it will be available for all Win 8 tablets as well. B&N does not really need a tablet of its own.
    hayneiii@...
    • RE: "B&N does not really need a tablet of its own.

      Given B&N's recent partnership with Microsoft, embodied by "NewCo", this may be true. B&N is, at it's heart, a retail brick and mortar and internet bookseller. Microsoft, with Windows RT RTM'd, should be more than capable of filling in the 7-inch tablet and eReader device side, if needed.

      I am one of the few that believes the recently-leaked $199 Surface tablet will be a 7-inch form-factor tablet sold via Microsoft's and B&N's NewCo venture. I also expect to see Windows RT-based, 10-inch form-factor tablets sold through NewCo as 7-inch form-factor tablets are too small to read eTextbooks on:

      "What devices can I read an eTextbook on?
      http://www.barnesandnoble.com/help/help_cds2.asp?PID=34428

      Hmmm ... A 10-inch, Windows RT-based tablet with Microsoft Office 2013 RT built-in might be a hit in the education market. Especially if priced appropriately. And if Microsoft gets a cut of digital media sales from NewCo, this will enable them to price their tablets on the low side.
      Rabid Howler Monkey
      • Makes sense

        That makes perfect sense. I don't see a $199.00 10" Win RT tablet, but a 7" e-reader would pretty much have to retail for around $199 to be competitive.
        dsf3g
  • The answer is "yes" they can do it.

    They just need an effective marketing campaign to leverage the brick and mortar. Heck, they have enough traffic. I suspect those customers would be less influenced by the competition than the normal consumer.
    droidfromsd
  • They'll also need a more expansive app selection

    The reason why Kindle Fire sold like it did was because Amazon has its own app store with a nice array of apps from paid to free. The same is true with the Nexus 7 for the same reasons.

    A consumer has to ask himself why he should by a Nook tablet with limited functionality (and no ability to install the Kindle app) when he can buy a Nexus 7 for the same price install the Nook app, Kindle app, Kobo, Google Books, Aldiko and a bunch of other apps completely unrelated to reading.
    tallbruva
  • Color eInk

    I couldn't see myself getting a dedicated reading device at this point when my phone, my tablet computer, and my desktop can all read the books just fine. Now, if they came up with a credible color eInk device, that could create the type of quality reading device that would be worth investing in.
    WebSiteManager
  • Surface Reader?

    I wonder...
    Sunovavic
  • Classic M$ EEE

    Embrace, extend, extinguish. Why else would M$ partner and form a subsidiary with a competitor product based on Android...when it has its own Surface platform it needs to push? Or...is it hedging its bets, given the marketplace qualms about Win 8 usability and what the fallout could be for its strategy?
    Techboy_z