Why I Still Like Barnes & Noble

With the recent news that Borders is in Chapter 11 and Barnes & Noble (BKS) hitting its 52 week stock low this week, there is reason to buy stock in the largest bookstore in the U.S.  It is undoubtedly brick & mortar heavy with over 1300 stores averaging 26,000 square feet.  But there are some things they are definitely doing right in that store and some things they have to figure out FAST!

What is right:

1. Merchandising – Barnes & Noble has done an impressive job of flexing inventory in the stores to appear to be a destination  shop no matter what time of year you enter the store.  At the holidays, the tables, stacks and shelves practically buckle from the inventory which gives shoppers the impression of selection and immediate gratification.  The rest of the year, the extra tables disappear, stacks are removed and shelves are smartly merchandised with books facing forward instead of spined to make an interesting display out of many fewer titles.

2. Pivot Businesses – Pivot businesses are the secondary product lines that a retailer can justify moving into with easy permission from its core customers.  For B&N, that is Games, Writing Accessories, Gifts, Maps, etc.  With the decline of KayBee Toys there is often no game presence in malls.  Barnes & Noble has been smart about picking up games and puzzles to create a shop within their store to pick up those sales.

3. Meaningful Customer Experiences – Besides partnering with Starbucks to create cafes within the store, Barnes & Noble has been doing a good job of picking up the writer appearances on tours that were the venue of independent book sellers.  I grieve as much as the next person for the decline in the quirky and customer-focused independent bookseller, but I am really pleased to see that Barnes & Noble has been increasing its writer appearances.  This is an experience Amazon cannot recreate.

What needs correcting:

1. Space Allocation – There is a vast wasteland in Barnes & Noble known as the DVD/CD department.  Trust me.  I was once an executive at Musicland.  I understand the dilemma.  B&N needs to quickly remerchandise that area and give up that ghost.  There is simply too much space and resources (there’s a separate POS!) devoted to that area to ever be profitable – even if they focus on off titles like Baby Einstein and foreign films.  My advice: place a Games by James or Creative Kidstuff concept in that space.

2. Customer Service – Ugh!  Unless you are interested in (1) a Nook or (2) buying the Barnes & Noble membership , expect an extremely uneven shopping experience.  I have been in a store where the associate “had no idea” where poetry books are located and another where I had to show them how to use and understand the locator system on the customer service computer.  With the abundance of booksellers looking for work, there is no reason B&N should be hiring the same folks who would be just as happy folding T’s at Old Navy.

So, why would I buy BKS now?  It’s at a 52 week low (which is when the smart money BUYS!) While Standard & Poor gave it a 3 -star (hold) rating on March 5th, due to the intense competition in the book space, I see ways for B&N to diversify and stay relevant to its customers.  Barnes&Noble will have value for a long time to come.  Will they get purchased? Maybe.  Do they still have years of viable life in the concept? Yes.  Can they succeed? They can if they realize that a multi-channel approach means not focusing on electronic book sales to the jeopardy of physical stores.

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