Barnes & Noble’s New CEO Gives A Full-Throated Defense of Physical Stores

May 24, 2017, 12:00 PM UTC

Barnes & Noble’s (BKS) new CEO, Demos Parneros, sees the new bookstores that arch-rival is opening as proof there is still a need and consumer appetite for brick-and-mortar book retailing.

Parneros, a longtime Staples (SPLS) retail executive, took the reins of the largest U.S. bookstore chain in April as its fourth CEO in as many years, after serving as operations chief for five months. He’s been given the mandate to revive a brand that has struggled to claim its share of online sales, notably from Amazon (AMZN), and that has not capitalized on the stabilization of print book sales in the U.S. following the abatement of the e-book boom.

Barnes & Noble
Barnes & Noble CEO Demos Parneros. Photo by Jeff Zelevansky for Barnes & Noble

The retailer reported an 8.3% decline in comparable sales (excluding its shrinking Nook e-reader and tablet business), in the holiday quarter, hurt by deep declines in shopper traffic. Much of its pain has been self-inflicted: Online sales rose only 2.2% last quarter, showing how far Barnes & Noble has to go in making its web site a go-to place for book buyers. (Last year, the retailer again overhauled its web site, improving its search and checkout.)

Having shed its college bookstore chain two years ago and downsized its Nook business, Barnes & Noble now has only its main retail business to rely on for growth. Yet despite all its challenges, Parneros says Barnes & Noble’s future will be intimately tied to its fleet of 634 bookstores. The comeback of independent bookstores and the arrival of Amazon stores paradoxically reassure him about his own company’s future. “Amazon opening physical bookstores, that’s a bit of a validation that it’s a good business to be in; the independents who are neighborhood favorites, that’s another sign that people do want places to go to buy books, to learn, to explore,” says Parneros.

A few weeks into the job, Parneros has not yet telegraphed major changes in the bookseller’s direction, but he told Fortune Barnes & Noble was looking at smaller formats and testing different ideas, expanding its in-store cafe service to include options like wine, and tweaking its merchandise. The retailer is also trying out some changes such as moving the Nook area, once at the front of the store, to a less prominent place by customer service. At the same time, he dismissed the idea that the chain has too many stores, saying instead that stores were what made Barnes & Noble beloved of its customers.

Parneros sat down with Fortune this week at Barnes & Noble’s headquarters near New York City’s Union Square to share his initial thoughts. This interview has been edited for brevity and clarity.

FORTUNE: What are Barnes & Noble’s biggest challenges at this point?

Parneros: They’re the same as for other retailers. It’s dealing with lots of stores, the impact of the internet, rising costs, rents up, staffing costs… Nothing really goes down, everything goes up.
Margins are getting squeezed because of mobile, aging store fleets, stores that are too big.

Last year, Barnes & Noble again relaunched its e-commerce site. Is it helping you?

Our online grew modestly, 2.2%, so not nearly enough to offset the sales declines [in bookstores]. I think there is a shift, it just didn’t come to us.

Barnes & Noble still operates 634 stores, compared to 720 seven years ago. Given the comparable sales declines, are there still too many Barnes & Noble stores?

No. There aren’t. And I can say this having run a 2,000-store chain before. We are looking at whether they’re the right size and [asking,] are we in right markets? The good news is that over next five years, 500 leases are up for renewal. That puts the hammer back in our hand. And we can decide what to do with those stores. [Parneros noted that only a small fraction of stores are unprofitable.]

What do you think of the Amazon bookstores that have opened?

It’s a completely different shopper experience compared to Amazon. We have beautiful, large stores– the ability to roam and explore much more than in an edited, curated place. I walked several of the Amazon stores, and they are what they are. But they don’t have that richness and years of experience from people who are local and understand that market.

Last year, Barnes & Noble founder Len Riggio, serving as interim CEO, said the bookstore had hurt itself by not sufficiently staffing stores during busy times. What’s your take on that?

We’re definitely not looking to cut away hours because we already have a traffic and sales issue. We have no choice but to work this one hard: Is every hour created equal? Is labor on the right part of week?

You are experimenting with five new-format stores, including a 22,00o-square-foot one in Westchester, New York that has a large cafe and relatively smaller selling space compared to your other stores. How do you know what to spend on store improvements and how to roll out new concepts that are working?

We’re calling those our labs. What the five test stores hopefully will do for us is teach us. Did we find our lightning in the bottle for one of them that we can replicate? If we don’t, but some pieces are working, we can roll those backwards into the chain.

Barnes & Noble has done well with games and toys as well as vinyl records. What are your thoughts on the merchandise mix in the future?

We need to be innovative about how we sell books, but customers have given us the license to sell gifts and educational toys and other things and we can really seize that opportunity.

We’ve had a very successful model for many, many years. It needs a little bit of refreshing.

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