For Barnes & Noble's Nook, the beginning of the end

For Barnes & Noble's Nook, the beginning of the end

Summary: Revenues are collapsing. Margins are thinning. Is it the final chapter for the U.S. book retailer's device business?

TOPICS: Tablets, E-Commerce
Books burning. (Photo: J. Ronald Lee/Flickr)

The U.S. bookseller Barnes & Noble revealed this morning that its core businesses—from brick-and-mortar stores to its Nook e-reader business—are collapsing.

The last massive entity in a rapidly consolidating industry, the company is engaged in a downward tumble. The question is whether it will slow to a stop or simply roll off a cliff.

The company posted quarterly revenues of $1.3 billion, down 8.5 percent from the same period a year ago. It posted a loss of $87 million, almost twice as much as investors expected.

Its Nook e-reader business, which includes hardware and digital content, logged revenues of just $153 million, down more than 20 percent from the same period a year ago. Hardware sales were down 23 percent and content sales were down almost 16 percent.

Its retail group, which includes brick-and-mortar stores and the company's namesake website, totaled $1 billion in revenue for the quarter, down 9.9 percent from the same time last year.

The bad news comes on the heels of an already tough quarter. Six weeks ago, its chief executive suddenly resigned. Eight weeks ago, the company decided to abandon its tablet computer business after a consistently weak showing against traditional computing giants such as Apple and Samsung. And two fourth quarter holiday seasons in a row, the company's Nook sales fell far short of its own expectations.

See also

Best Buy: Can stores be asset vs. Amazon?

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The first part of Best Buy's store plan revolves around improving the customer experience and price analytics. The second part uses stores as an online fulfillment center.

The conditions for a resurgence are far from hospitable. Despite just 22 percent of the U.S. book market—a certain Jeff Bezos-led company dominates—the company appears to have switched from an all-encompassing strategy of growth to a strategy of damage control.

"We are laser-focused on becoming more efficient and financially sound by managing both our operating expenses and inventory commitment levels," Barnes & Noble president and NOOK media CEO Michael Huseby said during the investors call explaining the company's fiscal results.

That's not to say growth is off the table; rather, that's a signal that B&N is locked in a race to the bottom for a device that has—expectedly—been largely commoditized thanks to Amazon's ruthless price undercutting.

Still, "If we want to be in the content business we need to be in the device business, no matter how they are produced," the company's executives said.

The only silver lining is the content business, for which the company has had some adoption issues.

"We believe that by offering high quality reading devices at lower cost we will be able to drive higher volumes of devices and therefore higher content adoption and revenues," Huseby said.

He added: "We have sold approximately 10,000,000 Nooks and our content activation levels need to better leverage that accomplishment. Therefore, we are implement programs to better serve our existing customer base and also aggressively exploring other target consumer markets with the potential to generate new revenue."

But time is running out; B&N's four-year-old Nook business has burned an estimated $1 billion or more since its inception, threatening to take down a 140-year-old company.

"We have already taken significant steps during the fourth quarter of 2013 to the first quarter of this year to reduce our cost structure in the NOOK segment we will continue our cost management efforts," Huseby acknowleged. "We believe that by implementing these plan actions, which are already underway, we will stabilize our business, drive growth and create value."

Can Barnes & Noble stand up and fight back? It may need to find the bottom first—and hope that its retail revenues hold out.

Topics: Tablets, E-Commerce

Andrew Nusca

About Andrew Nusca

Andrew Nusca is a former writer-editor for ZDNet and contributor to CNET. During his tenure, he was the editor of SmartPlanet, ZDNet's sister site about innovation.

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  • RE: For Barnes & Noble's Nook, the beginning of the end

    While supplies last, the Nook HD and HD+, currently priced at $129 and $149 U.S., are the best tablet buys going today. Both tablets now have access to Google Play.

    Since Barnes & Noble is where I currently buy my books, I hope that they manage to make enough money to stay in business. If not, it will be a shot in the arm for those independent booksellers that have managed to survive Amazon's online book business.
    Rabid Howler Monkey
    • It'll be win-win either way.

      I prefer B&N over Amazon, and preferred them over Borders. Most of the mom&pop booksellers around me are a bit of a drive, but I'd still buy from them before buying books from Amazon.
    • If Barnes and Noble is to survive...

      If Barnes and Noble is to survive, they're going to have to start charging Amazon Tax because that's a problem.

      Also, they need to scale down their inventory and go more to a coffee shop style that has ebook readers, tablets, and computers at the heart. Of course they need to keep the read any book for an hour a day in store but, change it to read 1 book for an hour a day in store.

      The Nook App is the best reading app period but, they got hit by a company that didn't care if they made money or not on the way to dominating the eBook market.
    • Finnaly

      The nook was what it represented to be. The nook color pretended to be just a color version when everyone knew it to be a proper android tablet only gelded. Hence people bought the real thing that wasn't restricted. BN lost out and that is a shame. Apple MS and other companies have to learn that selling less features than your competitor doesn't work in the tech industry.
      • That not all...

        There content distribution stinks. Wife bought a book from them and when she changed devices B&N required a credit card number to mover the book. With that type of service it is good to see it go. At least from the reader industry, I still like the fact that I can browse books in their store, I will miss that.
    • My pity has vanished

      I felt so sorry, I tried to buy one... Then their website refused to make a sale, because I'm in Australia.
      I've heard of customers saying "Shut up and take my money". This is a rarer case, of a dealer saying "Keep your money, I'd rather go broke".
      • If I had bought one Kindle ...

        I bought the Nook in US, but when I came to Brazil, B&N didnt allowed me to buy books anymore. If I had bought one Kindle this will not be a problem. If I had bought one Kindle ...
    • There is another plus about Amazon though

      They do support people publishing themselves independently. They have a full system setup so that an independent author can publish their work and get paid. I guess I view that as also supporting the independents. Now that has made the publishing houses unhappy.
      • So, Amazon supports independent publishers

        My comment specifically addressed "independent booksellers". Amazon's business model has decimated retail chain and independent booksellers.

        Next time, try to understand the difference.
        Rabid Howler Monkey
  • BN has priced itself out of the market

    I have and love my Nook Color, but I buy most of my books from other vendors, for ebooks I frequently go directly to the publisher, and save 3 to 5 dollars a title, and apps are ludicrously high - I frequently just plain pass on the purchase.
    • RE: BN has priced itself out of the market

      I get most of my e-books for free (on loan) from my local library system. They don't always have ALL the books I want, but enough to keep me happily occupied. My main objection to the price of e-books is they don't seem to have any "discount" relative to hard copy when there are no costs for printing and print media. Also, e-books are often retailed with hard cover prices, even when a paper back hard copy version is out there for a third or more less. I wonder if BN would ever consider something like an ebook "subscription" (ala Audible) or consider functioning as a "lending library" like the NetFlix CD program.
  • no they cant fight back amazon is the reason why

    amazon, apple and android manufactures making most of the tablet money as the nook has google play on it now but it cant compete to the kindle as i tested them both and the kindle is slightly better for reading but for apps its the nook all day but im still shocked that no body is buying them as they now have a google experience with chrome gmail and all the google products, and amazon only has 1/3 of the google play apps but they call it the amazon Appstore for android... But the majority buy books and 4 million books vs 2.5 million is enough to sway someone to amazon, plus if they are a amazon prime member, then its a no brainer to go there...
    • Amazon might have a bit better library,

      but the Nook is the better device. However, today's marketplace proves it's not the device quality but marketing that sells, otherwise the Samsung S4 wouldn't be the hottest-selling phone right now.
  • Problem is...

    Amazon's eReaders have more features:
    Text to speech
    Buy once, read EVERYWHERE and I do mean everywhere, Linux, Windows, iPhone, Android, Windows Phone, if all else fails they even allow you to read from ANY web browser, which means any device that can go online can read Amazon books.

    Then we look at Amazon's customer old kindle died and was out of warranty, Amazon offered me a new one for as low as $29, depending on which one I wanted. I ended up getting a Kindle Fire HD for about $100 off. This doesn't count the times that they have replaced friends and family's devices with no questions asked, even when they bought the devices used and not from Amazon.

    Now add in Amazon prime with free video streaming, free book borrowing and the fact that many Libraries support borrowing on Kindle Devices and not on Nooks (more are allow nooks though) and we start to have a clear winner.

    Add in the Kindle Fire HD with some of the best speakers I have ever seen in a tablet and by far the best WiFi experience and it's clear cut why Amazon is doing better than the Nook.

    No, it doesn't come with Google Play built-in, but that is easy enough to fix, so no real issue there either.
    • Nooks not library friendly? What?

      With the Overdrive app, I have been able to borrow library e-books from every library I've been a member of. I could do this with my Nook Color and my Nook HD+. And no going through Amazon to confirm the borrowing. I, accidentally, chose the Kindle version of a book once and was miffed to realize I had to log into my Amazon account before I could download the book. What a hassle! Not necessary for an epub version.
    • I do epub books from the library all the time.

      Agree with tigger that library books are not a problem (from my library, anyway). I have a B&N Nook w/Glow, and love it, especially for reading in bed. Makes me sad that B&N is struggling. Didn't Microsoft make some investment in B&N about a year ago or so?
  • Amazon has the definite advantage

    With their ecosystem - especially with Prime. Barnes and Noble has a killer product with the Nook HDs which IMHO are much better than the Kindle Fire devices but they are not able to compete with Amazon Prime.
  • B&N Needs to Rethink their Retail Businesses

    The cornerstone of B&N needs to be their retail store biz, and to get customers to want to be there, a revamp is needed. Their stores miss the cozy feeling of a privately-owned bookstore. They probably should make better use of smaller space and create some intimacy.
    There also needs to be a better distribution of books in the store, so browsing customers can make discoveries of books (and other products) that they did not intend to buy. Even unexpected special daily deals can bring in shoppers.
    Wouldn't hurt to also take a page from Panera and make more of an attempt to be a part of the communities where the stores are located. Panera locations often have a meeting room for book groups or other local organizations to use. They also host some of their own events. Even small touches like a community bulletin board could help.
    B&N will lose in a head-to-head ecommerce battle with Amazon, so they'd better start doing more to enhance the shopping experience in their stores.
    • Smaller space...

      ..means less product there for purchase. If you had to resort to ordering a book because they didn't have it on hand wouldn't you just use Amazon, particularly if you have Prime? Also, how many times have you picked out a book from browsing the shelves?

      If you're a book lover this is a sad development. I was hoping that B&N would be stronger since Borders closed.
    • All good points but today buyers (like me, for instance) will go to a ...

      ... bookstore (I like B&N bookstores) to peruse new titles then go home and see if I can find the title in the Kindle Store. Since the book app (like the Kindle app) is available for most all tablets and smartphones, B&N has to find a way to get buyers to get e-books from them instead of from the Kindle store.

      For instance, B&N could offer buyers a discount for buying the e-book from the Nook on-line store while the buyer is physically in the B&N bookstore on the B&N wireless network.

      B&N has the advantage of having a place fore people to go to SEE new titles. They need to leverage that while the buyer in IN THE STORE. Amazon (and other booksellers) cannot offer that service.
      M Wagner