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Barnes & Noble Is Falling Further Behind Amazon

Sep 07, 2017

It was hard to find much to cheer about in Barnes & Noble's (bks) latest batch of financial results.

The bookstore chain on Thursday reported yet another decline in comparable sales at its stores, said fewer people are coming to stores and forecast soft business for the coming quarter. Barnes & Noble's loss for the quarter ended July 29, came to $10.8 million, or 15 cents per share, while analysts were expecting 12 cents, sales fell to $853.3 million, a sharper decline than Wall Street had foreseen. Total comparable sales fell 4.9% during the period.

The bad news sent Barnes & Noble's shares down 8% in afternoon trading, dealing another blow to stock that is 45% below a 52-week high and bolstering the arguments put forth by an activist investor, Sandell Asset Management, which has urged the retailer to do more to turn itself around and consider putting itself up for sale.

On one key retail metric after another, Barnes & Noble continued to fare poorly: online sales, shopper traffic, comparable sales of books and comparable sales of non-books. This bleak picture comes at a time Barnes & Noble is contending with arch-rival's Amazon.com (amzn) growing physical footprint and the increasingly strong hold its Prime loyalty program has on customers.

Barnes & Noble has also been dealing with many changes in its c-suite, including new a CEO and chief merchant, in the last few months alone, and its initiatives to fix its business are proving painfully slow in paying off. The retailer, which only recently had positioned itself as a leading seller of toys and games, said comparable sales of non-book categories fell 8.8% in the quarter.

And even as it continues to tinker with its web site, online sales fell again, a disappointment given the stability of overall industry book sales that suggests the nation's biggest bookstore chain isn't holding onto to its digital clientele against Amazon.

As for its once large Nook e-reader business, Barnes & Noble at least stopped losing money on it, but sales fell 28% as device prices fell. Nook, launched in 2009, held its own against Amazon's Kindle for a while. And Barnes & Noble, which has lost about $1.3 billion in the last six years on the Nook business, says Nook is essential to feeding its e-book and online business. But given the performance of Nook, and the resources it siphons away, one analyst wondered whether it was time to pull the plug on what was once a $933 million a year business. (Nook had sales of $146.5 million last fiscal year.)

"The fact the business is shrinking by so much demonstrates it is a very ineffective platform," Neil Saunders, Managing Director of GlobalData Retail. "B&N would be better to scrap NOOK entirely and focus its efforts in developing a better online platform and apps to support its business."

Barnes & Noble has been testing new formats that include nice cafes and eating areas, but a handful of new locations in a fleet of more than 600 stores, even if successful, won't move the needly anytime soon. The retailer is also getting around to testing a better prices in its loyalty program to collect data. But at a time the number of Amazon Prime members keeps rising dramatically every year, offering speedy delivery, it'll be tough for Barnes & Noble to win away such customers.

The retailer is still testing ship-from-store for online orders, now using 60 stores to help fill online orders faster. Again, such a move is now standard in retail and maybe too little, too late given Amazon's increasing fast-delivery firepower. And Barnes & Noble is testing out new signage and store layouts.

Barnes & Noble CEO Demos Parneros downplayed the threat from Amazon's new bookstores, telling analysts on a conference call that "our stores are really much more about discovery and spending time walking through stores." But with his company still trying to figure out e-commerce, update the look of its stores, make its loyalty program competitive and testing out cafes, Barnes & Noble needs to hustle if it wants more shoppers to go seek discovery at its stores rather than at Amazon or elsewhere.

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