Strategic Positioning Report: Barnes and Noble Zoë Lang
INFO 678
Competitive Intelligence
Professor Zach
Fall 2012
Executive Summary
Barnes and Noble faces a daunting challenge to remain in business. Although its brick-and-
mortar locations continue to stay profitable, their margins are slim, and Barnes and Noble cannot
depend on this segment for growth—this is the company’s ‘cash cow.’ Its college bookstores
provide more stability since Barnes and Noble has a significant presence on campuses; indeed,
this segment is the company’s ‘star’ right now, although it still faces challenges from
competitors such as Follett. Recently, Barnes and Noble has sought to adapt to the shift toward
digital materials that is taking place in this sector by creating a ebookstore and developing its
own hardware, the NOOK, to access it. However, in doing so, it has pitted itself against several
giant rivals, including Amazon, Apple, and Google—the NOOK remains Barnes and Noble’s
‘question mark,’ since it has underperformed compared to its competitors. Furthermore, these
companies can outspend Barnes and Noble in research and development, while other
competitors, such as Amazon, Walmart and Target, can undercut Barnes and Noble on price
points for hard-copy books. As a result, Barnes and Noble needs to cultivate its customers and
develop new products to differentiate the company from its competitors.
This report recommends that Barnes and Noble concentrate more on its ‘star’ by cultivating a
stronger relationship with its college students and developing its products so that they meet the
needs of this population in the future. By modifying its NOOK Study platform so that it is a
viable option for distance education and mobile access, Barnes and Noble will position itself as a
leading provider of educational materials for the next generation of college students.
Additionally, Barnes and Noble already has the resources to create a new product that is not
currently offered by its competitors: a comprehensive curriculum for students who are
homeschooled. By integrating materials from its Sparknotes holdings onto the NOOK Study
platform and offering solutions to problems that home educators face, Barnes and Noble can
create a new product for the increasing population of homeschooled students. Perhaps most
importantly, both of these customer bases offer the potential to be more than simply short-term
clientele; instead, Barnes and Noble could strengthen its ties with these groups to ensure that
they become lifelong customers.
Barnes and Noble: Key Facts
Barnes and Noble is a major retailer of books based in the United States. Its head office is
located at 76 9th
Street, New York, NY, 10011. There are three different segments through
which Barnes and Noble serves its customers: through brick-and-mortar stores; through its
college bookstores; and online.
Barnes and Noble operates a total of 1 341 stores (Annual Report, 2011). Of these, 53% (705)
are book ‘superstores,’ which sell books, CDs, DVDs, and often feature a café—although the
cafés are the result of partnerships with various businesses (such as Starbucks, Cheesecake
Factory, and other food services), this portion of the store is still run by Barnes and Noble. The
remaining 47% (636) of the brick-and-mortar locations are college bookstores. The flagship
location for the college division, called ‘the world’s largest bookstore,’ is located at Fifth Avenue
and 18th
Street in New York, NY. The primary consumer site is www.barnesandnoble.com,
where customers can purchase books (both hard copy and electronic), NOOKs (the company’s
eReader/tablet), and peripheral goods such as DVDs and CDs. A second website,
www.barnesandnobleinc.com, provides corporate information. Barnes and Noble is a public
company that is listed on the New York Stock Exchange, with the symbol BKS.
Barnes and Noble has a history of acquiring companies that strengthen its core ventures—chief
among these was the 1986 acquisition of the bookstore chain B. Dalton, which expanded Barnes
and Noble’s reach throughout the United States. Another key asset is Sterling Publishing, which
Barnes and Noble acquired in 2003, and provides a means of creating new content for its stores
rather than depending solely on materials from publishing companies. Barnes and Noble also
owns Sparknotes (acquired in 2001), which creates educational materials such as book
summaries and test preparation. Perhaps the most lucrative acquisition was the college
bookstores, which had been a separate division from 1993 until their reacquisition in 2011; these
assets generated 15% of Barnes and Noble’s growth in 2011. Recently, Barnes and Noble has
also formed two key alliances: Liberty Media, which owns a diverse collection of assets such as
QVC and Starz, bought 17% of the company in 2011; and Microsoft invested $300M in a NOOK
subsidiary (Hoovers: Barnes and Noble, 2012).
In the past, Barnes and Noble had the following mission statement:
Our mission is to operate the best specialty retail business in America, regardless of the
product we sell. Because the product we sell is books, our aspirations must be consistent
with the promise and the ideals of the volumes which line our shelves. To say that our
mission exists independent of the product we sell is to demean the importance and the
distinction of being booksellers.
As booksellers we are determined to be the very best in our business, regardless of the
size, pedigree or inclinations of our competitors. We will continue to bring our industry
nuances of style and approaches to bookselling which are consistent with our evolving
aspirations.
Above all, we expect to be a credit to the communities we serve, a valuable resource to
our customers, and a place where our dedicated booksellers can grow and prosper.
Toward this end we will not only listen to our customers and booksellers but embrace the
idea that the Company is at their service. (Best et al., 2010)
However, this information is no longer available on the company’s website and no replacement
has been posted. Therefore, the current mission statement is difficult to determine. Barnes and
Noble is seeking to transition to a ‘multi-channel model’ (Form 10-K, 2012) that has greater
balance between its segments, but it has not yet accomplished this goal. Currently, Barnes and
Noble’s main asset is its bookstores, which account for 63% of its business, followed by college
bookstores (25%) and lastly its NOOK division (12%) (Annual Report, 2011). Perhaps this lack
of a mission statement reflects a larger ambiguity that the company currently faces: how to
complete this transition to a multi-channel mode so that it can compete against its many rivals.
SWOT Analysis for Barnes and Noble:
Strengths: leads sector in brick-and-mortar bookstores; strong presence on college campuses
Weaknesses: too dependent on hard copy book sales; NOOK is an expensive gamble
Opportunities: more demand for ebooks; college enrollment projected to increase
Threats: technological developments by competitors; bookstores generally in decline
Competitors
Barnes and Noble is officially classified as a bookstore engaged primarily in the sale of new
books (NAICS: 451211). More accurately, though, Barnes and Noble operates in four separate
yet related sectors, and therefore must compete against a number of very different companies
that range beyond its immediate classification. It is challenging to construct a typical model
(such as Porter’s Five Forces) to summarize the industry because the landscape currently
comprises very different competition depending on the delivery method; instead, this model
considers each sector and its primary competitors separately:
1) Bookstores: Barnes and Noble’s brick-and-mortar locations lead this sector (with 40% of the
market share); the next chain is Books-A-Million, which controls only 2.5% of the market with
approximately 280 stores (Hoovers: Books-A-Million, 2012). Bookstores are thought to be a
declining industry; the 2011 bankruptcy of Barnes and Noble’s leading competitor, Borders,
provides tangible evidence that bookstores are in trouble (Waterman, 2012). Beyond its
immediate rivals, Barnes and Noble must compete with retail superstores such as Walmart and
Target. These companies can offer books below cost to attract customers to their stores with the
expectation that they will make additional purchases (Trachtenberg & Bustillo, 2009).
2) College bookstores: Barnes and Noble has the second-largest market share in this sector, after
Follett, which operates approximately 800 campus bookstores to Barnes and Noble’s 636
(Hoovers: Follet, 2012). As noted in the 2011 annual report, the college bookstores are relatively
impervious to some broader economic trends; for instance, in a recession, enrollment in higher
education tends to increase as people seek further education to better their employment
opportunities, resulting in more sales of college books (Annual Report, 2011). However, there
are threats to this sector, including new developments in etextbooks and the used book market.
In response to this, Barnes and Noble has created an online platform, NOOK Study, for an
enhanced method of accessing electronic versions of textbooks.
3) Online retailers: the landscape for brick-and-mortar bookstores has altered drastically in the
past decade, primarily because of the rise of Amazon.com, which offers customers expanded
selections and the convenience of acquiring materials at their leisure. Although Barnes and
Noble does provide its customers with a comparable online shopping experience, Amazon’s
sales in 2011 ($48M) were almost seven times those of Barnes and Noble ($7.1M) (Hoovers:
Barnes and Noble, 2012).
4) NOOK: although the NOOK has received high praise in reviews, its sales have lagged behind
other ereader and tablet devices (Greenfield, 2012). Amazon’s Kindle devices are the most
popular, while Android tablets are growing at a significantly faster rate than the NOOK—
Android (a subsidiary of Google) is the platform for many tablet devices, including the NOOK
and Kindle Fire, but the rise of other hardware, including Google’s own Nexus 7, is of particular
note. The success of Amazon both as a book retailer and as an online bookstore destination for
ebooks is a double threat to Barnes and Noble. Furthermore, these competitors have
considerably larger profits and can invest heavily in research and development. Microsoft’s
investment in the NOOK may provide needed funds to develop this product, but currently there
is no reason to suggest that it will overtake Amazon or grow at the same rate as Android
products.
In short, Barnes and Noble has only a very slim competitive advantage through its brick-and-
mortar bookstores and its college bookstores. It must find ways of developing new products that
differentiate it from its competitors in order to remain profitable, particularly as consumers seek
more electronic media.
Key Trends
Two major trends that will affect Barnes and Noble in the future are the growing importance of
electronic media (in particular, books) and increased enrollment in higher education:
1) Electronic media: there is little doubt that an increasing number of customers will prefer to
read electronic books over hard copies, a trend that has already made a marked difference on the
industry as a whole (Rainie et al., 2012). Although Barnes and Noble has sought to capitalize on
this trend through its NOOK and ebookstore offerings, it continues to lag behind its competitors,
specifically Apple and Amazon. Barnes and Noble’s approach is to offer its customers an
integrated experience: for example, books ordered online can be picked up in person at a retail
outlet; customers in a brick-and-mortar location can bring their NOOKs and browse books for
free while in the store; and loyalty programs can decrease costs for repeat customers (Annual
Report, 2011). However, this model hinges on the continued importance of the retail locations,
which have seen declines in revenue (Waterman, 2012). Barnes and Noble needs to find a way
of bringing customers into their integrated experience and retaining them that minimizes the
importance of the brick-and-mortar location.
2) Increased enrollment in higher education: the National Center for Education Statistics projects
that student enrollment in degree-granting post-secondary institutions will increase by 13% by
2020 (Hussar & Bailey, 2011). Barnes and Noble stands to benefit from this trend since it
already has a significant presence on college campuses.
Evaluating Trends
Evaluating the impact of these trends on Barnes and Noble should be possible with the following
sources of information:
1) Industry reports: Barnes and Noble should monitor reports on bookstores, ebooks,
ereaders/tablets, mobile platforms, higher education and etextbooks. All of these topics have
attracted the attention of industry groups (such as the Book Industry Studies Group) and
government entities (such as the US Department of Education). New opportunities and trends
can be identified from these resources.
2) Customer surveys: Barnes and Noble needs to be aware of its customers’ needs, which are
shifting drastically as new technology becomes available. In particular, it should tap its college
student base to learn more about what these customers want. Barnes and Noble has created
initiatives in response to this group’s unique needs; for example, their college bookstores now
offer textbook rentals to help reduce the cost of higher education (Annual report, 2011).
However, this segment should be highly valued since positive associations formed during the
college years could create long-term customers.
Recommendations
My recommendation for Barnes and Noble is to continue to expand its educational offerings,
both by further developing its college market and by entering a new market with materials for
homeschooling:
1) Increased presence for students: Barnes and Noble is well positioned to take advantage of the
increased number of post-secondary students; however, there are several additional actions that
the company should take to ensure that it capitalizes on this opportunity:
i) Barnes and Noble should increase its online offerings, such as etextbooks, since
distance education is also expected to grow during this time. New and innovative ways
of delivering these materials to students could provide a competitive advantage to Barnes
and Noble. For instance, it is anticipated that students will expect materials to be
available in various formats, particularly through digital and mobile channels (Van der
Werf & Sabatier, 2009). Barnes and Noble needs to capitalize on these trends with the
services that it currently offers, as well as developing new ones. For example, the NOOK
Study platform could be promoted in conjunction with its brick-and-mortar college
locations to integrate its customers into the Barnes and Noble experience; additionally,
Barnes and Noble should seek new and more innovative ways of making educational
materials available to students in traditional and non-traditional settings, such as in a
mobile format.
ii) Barnes and Noble should also make available a student loyalty program, such as the
one already in place by Amazon. Such a program could serve to transition its college
students into long-term customers once they graduate. A loyalty program that offered
discounts or incentives would encourage students to continue doing business with the
company.
2) Develop homeschooling materials:
i) The number of students who are educated at home has been increasing steadily since
1999 (Aud et al., 2009). Currently, there are approximately two million students who are
home schooled at an average annual cost of $600/student. If Barnes and Noble could
capture one quarter of that market and sell $200 in educational materials to each student,
it would stand to earn $50M annually.
ii) Homeschoolers already affiliated with Barnes and Noble would be more likely to
order additional materials from this retailer instead of its competitors. In a 2003 survey
of homeschoolers, 76% reported purchasing materials from a bookstore for their
curriculum (Princiotta et al., 2006). Currently, none of Barnes and Noble’s competitors
offer a specific set of materials for this market, although it is possible that Amazon or
Apple could compete. Apple, in particular, already has a textbook agreement with major
publishers, and could become a significant rival in this venture (Cheredar, 2012).
However, Barnes and Noble would have a price advantage for hardware since the cost of
a NOOK is significantly less than that of an iPad ($269 versus $399 respectively);
furthermore, NOOK software can be used on any operating system, whereas many of
Apple’s features are limited to iOS.
iii) Barnes and Noble already has the resources it needs to create a platform and materials
for homeschooling. NOOK Study could add more features, such as a method for tracking
what has been covered in lessons—state requirements demand that those who
homeschool keep records of the topics that they have covered. Such a system could
alleviate one of the chief challenges that home schooling educators face. For materials,
Barnes and Noble could draw from Sparknotes, specifically its literature reviews and test
preparation materials; AP courses and similar evaluation methods are an important way
for homeschool students to demonstrate that they are viable candidates for colleges
(Brenzel et al., 2008). Barnes and Noble could also partner with respected figures in the
field of homeschooling who have significant online presence, therefore legitimizing this
venture for the homeschool population.
Conclusion
While Barnes and Noble faces fierce competition, it can remain in business by drawing on its
core resources. In particular, it already has advantages in its relationship with college students
and expand into the market for homeschooling materials. By cultivating the resources that it
already has, Barnes and Noble can maintain its niche as a purveyor of books—regardless of the
format in which they are delivered.
Bibliography
Aud, S., Hussar, W., Kena, G., Bianco, K., Frohlich, L., Kemp, J., Tahan, K., Mallory, K.,
Nachazel, T., Hannes, G. (2011). The Condition of Education 2011. National Center for
Education Statistics.
Best, S., Zeigler, J., Smith, C., Whitley, J., Cornwell, J. (2010). A Case Analysis of Barnes &
Noble. http://robertdaigle.com.s130329.gridserver.com/wp-
content/uploads/2011/08/BarnesAndNoble.pdf
Barnes and Noble (2012). Form 10-K.
http://www.sec.gov/Archives/edgar/data/890491/000119312512285399/d361699d10k.ht
m
Barnes and Noble (2011). Annual Report.
http://www.barnesandnobleinc.com/for_investors/annual_reports/2011_bn_annual_report
Brenzel, J., Poch, B., Syverson, S., & Walker, B. (17 December 2008). Q. and A.: College
Admissions. ‘Questions/Answers,’ New York Times.
http://questions.blogs.nytimes.com/2008/12/17/qa-college-admissions/
Cheredar, T. (2012). Apple Textbooks Infographic. Venture Beat.
http://venturebeat.com/2012/01/19/apple-textbooks-education-infographic/can-tech-save-
education/
Greenfield, J. (7 May 2012). iPad E-Reading Market Share Stagnates as Tablet E-Reading
Rises. Digital Book World. http://www.digitalbookworld.com/2012/ipad-e-reading-
market-share-stagnates-as-tablet-e-reading-rises/
Hoovers (2012). Barnes and Noble. Hoovers.com.
Hoovers (2012). Books-A-Million. Hoovers.com.
Hoovers (2012). Follett. Hoovers.com.
Hussar, W. & Bailey, T. (2011). Projections of Education Statistics to 2020. National Center for
Education Statistics.
Princiotta, D., Bielick, S., & Chapman, C. (2006). Homeschooling the in United States: 2003.
National Center for Education Statistics.
Rainie, L., Zickuhr, K., Purcell, K., Madden, M., & Brenner, J. (2012). The rise of e-reading.
Pew Research Center.
Trachtenberg, J. & Bustillo, M. (30 October 2009). Amid Price War, Three Retailers Begin
Rationing Books --- Small Booksellers Saw a Way to Stock Shelves With Below-Cost
Titles Sold by Walmart, Amazon and Target. Wall Street Journal, B6.
Van der Werf, M. & Sabatier, G. (2009). The College of 2020. The Chronicle for Higher
Education Inc.
Waterman, J. (2012). IBISWorld Industry Report 45121. Book Stores in the US.
www.ibisworld.com.