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

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?

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.


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.

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