BSTC 204-Journal of Business Case Studies-Barnes & Noble, Inc

BSTC 204-Journal of Business Case Studies-Barnes & Noble, Inc

Subject: Business    / Marketing

Prepare a four page paper paraphrasing (e.g. using your own words) with no quotes or outside information that is double spaced, 12-point font, with 1” margins on all sides. Write in the second person avoiding “I” or “we” statements. Use 1-8 as subtitles, which follow:

Cover page

Case Recap
Problem Identification
Identify the root problem components
Marketing Mix (discuss 5 P’s – product, price, place, promotion, and people)
Social Media: Analyze the current social media plan
SWOT (Note: Identify four strengths, four weaknesses, four opportunities, four threats)
Sound alternatives/Measurements (Note: propose at least two possibilities)
Recommendations (Note: fully justify your recommendations)

Reference page – include your textbook and two outside solid, dependable references, which can pertain to the company or the marketing situation.

Journal of Business Case Studies – July/August 2010 Volume 6, Number 4 Barnes & Noble, Inc.: Maintaining
A Competitive Edge In An
Ever-changing Industry
Wendy Hall, Lynchburg College, USA
Atul Gupta, Lynchburg College, USA More Clicks at the Bricks: How retail stores are scrambling to catch up with the shoppers empowered by the Web.
The Internet hasn’t destroyed brick-and-mortar retailing, as many once feared. But has it ever changed consumer
Headline and text from Business Week Magazine (December 17, 2007)
Barnes and Noble 4Q down, but forecast up.
Both Barnes and Noble and Borders have lost market share from aggressive discounting from online retailer and discounters like Target Corp. and Wal-Mart stores Inc.
Headline and text from Associated Press on-line (March 20, 2008) ABSTRACT
On Christmas Eve in 2007, Barnes & Noble’s Chief Executive Officer, Steve Riggio, sat in his
Manhattan apartment overlooking the busy streets of NYC and was hoping that the last minute
shoppers were making their Christmas purchases at the B&N Union Square flagship store.
However, he could not help but worry about the increasing competition in the retail industry,
specifically, the book industry. Riggio wondered if shoppers would even be in the stores or would
they have already done their shopping on-line? If they had done their shopping on-line, would
they have used or In the midst of a struggling economy,
would shoppers choose to shop at discount stores such as Costco or Target? These were just a
few of the questions that Riggio was asking himself at the end of a very tough year. Riggio
considered where Barnes & Noble would be in 5, 10, or even 20 years. Unfortunately, with the
increasing competition, technological advances, and changes in book industry trends, Riggio
knew that the answers were not only complex; they were yet to be determined.
Keywords: Competitive Strategy, Value Management, Performance Management BACKGROUND B arnes & Noble, Inc. (B&N) trades on the New York Stock Exchange under the symbol “BKS” and is
considered the world’s largest bookseller.1 B&N currently owns B. Dalton bookstores, located mainly in
large indoor shopping malls, as well as Sterling Publishing. In addition, B&N owns 74% interest in
Calendar Club, L.L.C.2 B&N also sells a large amount of books and music over the internet at 1
2 Barnes & Noble Press Release attached to their 2007 SEC Form 8-K, March 3, 2008
Barnes & Noble’s SEC 10-K 2007 Annual Report, April 2008 9 Journal of Business Case Studies – July/August 2010 Volume 6, Number 4 Currently, B&N has 798 stores in operation, 85 of which operate under the B. Dalton name. 3 B&N plans to open 35
to 40 new stores in fiscal year 2008.4 In contrast, B&N plans to gradually close underperforming B. Dalton stores.
Specifically, 882 B. Dalton stores have closed since 1982, 13 of which were closed in fiscal year 2007. 5
Barnes & Noble opened the “Original” Barnes & Noble store in New York City in 1917 and the first
“Superstore” in 1992.6 B&N stores are very large in size ranging from 10,000 square feet to 60,000 square feet,
with most being on average of 25,000 square feet. 7 Many Barnes & Noble stores include an in-store café that offers
sandwiches, desserts, and Starbucks coffee products. Barnes & Noble is very much focused on community and
allows each store to establish their own community events calendar, which includes events such as story time, fund
raisers, book readings, book signings, and more. 8
Barnes & Noble’s sales consist mainly of adult trade, magazines, children’s books, mass market paperback,
gifts, music, and movies. On March 3, 2008, B&N opened Barnes & Noble Studio (, an on-line
multimedia site intended to lure readers, publishers, and writers. 9 Mike Skagerlind, Vice President of Digital Media
for B&N, said, “Our programming celebrates the diversity and creativity that surround the world of books, authors
and readers in a way that is useful, entertaining, and accessible. Barnes & Noble Studio will do for the book what
the cooking show did for the recipe.”10 On March 24, 2008, B&N launched a new how-to website called
“” ( is published by Barnes & Noble, Inc. and offers how-to
information on more than 1,000 topics.12 Dan Weiss, publisher and managing director for said in a
press release on March 24th, “ positions Barnes & Noble as a leader in digital how-to publishing.”13
Barnes & Noble is not the only company affected by changes in the book industry. Significant changes in
the book industry, including the increase in audiobooks, the internet, piracy of books, music, movies, and the newly
invented “e-reader”, which allows consumers to read books electronically on a reading device about the size of a
blackberry, are having companies within the book industry all along the supply chain taking a closer look. 14 The
Book Industry Study Group (, which is considered an authoritative association within the industry,
has been researching and providing the industry with a comprehensive collection of data on the trends in the book
industry for over thirty years. 15 In September of 2007, the BISG released its latest “Book Industry Trends 2007”
book which includes data from 2005 through 2011. The BISG projects that total consumer expenditure will increase
only by 2.9% by the year 2010, down from 2007, which was projected at a 3.9% increase from 2006 (see Exhibit 1).
The BISG gathers data from numerous sources, including the U.S. Census, 10-Ks/Annual Reports, Wall Street
reports, U.S. Department of Education, Retail Data, Publishers, and more.16 A time series forecasting tool is used by
the BISG to project industry trends. The “Auto Regressive Integrated Moving Averages” model or the “ARIMA”
uses historical data to look for patterns and project future trends. 17 3 ibid
6 Accessed on April 17, 2008
Barnes & Noble’s SEC 10-K 2007 Annual Report, April 2008
9 , Accessed on April 17, 2008
11 . Accessed on March 25, 2008
Greco and Wharton webcast “The State of the Book Industry”, found at the Library of Congress website 6/28/2007
15 . Accessed on April 17, 2008
16 . Accessed on April 27, 2008
4 10 Journal of Business Case Studies – July/August 2010 Volume 6, Number 4 Exhibit 1: Summary of Data from the BISG showing Growth Projections through 201018
PROJECTIONS 2005 2006 Publishers’ Net Dollar Sales
Millions USD$
34,628.90 35,686.10
% change
Publishers’ Units
% Change 3,085.80 3,102.70
0.5% Domestic Consumer Expenditures
Millions USD$
51,919.80 53,615.50
% change
3.3% 2007 2008 2009 2010 37,085.20 38,298.00 39,595.90 40,732.50
2.9% 3,148.10
1.5% 3,180.00
1.0% 3,205.70
0.8% 3,223.20
0.5% 55,695.80 57,455.10 59,332.80 61,053.70
2.9% Professors Albert Greco and Robert Wharton of Fordham University, lead researches for the BISG,
discussed their predictions for the book industry during a lecture at the Library of Congress in June of 2007.
Professor Wharton stated, “Overall, the industry is growing but only at a rate slightly greater than inflation.
Publishers are profitable and sales are increasing, but the bar is being raised higher and higher for profit margins”. 19
The major categories in the book industry are Adult Trade, Juvenile Trade, Mass Market Paperback, Religious,
Professional Publishing, College Textbooks, and Elhi (Elementary and High School) and College. Religious books
appear to be the most successful sector and predicted to increase to $3.07B by the year 2010, which is a 50%
increase from 2006.20 Wharton and Greco attribute this increase in Religious books to “the significant number of
publishers active in this field, the rise of mega churches, increased church attendance and expanded offerings on this
topic at large secular bookstore chains”. 21 Greco and Wharton also predict the Juvenile sector to be strong based on
the huge success of the final installment of the Harry Potter series. Another big title such as Harry Potter could
drive sales in the Juvenile sector to $6.8B by 2010.22 Another significant finding in the College Textbooks sector is
that there is an increase in the demand for used books and electronic access to textbooks.23
One disturbing trend is the increasing amount of piracy of books, music, and movies. In 2006, the United
States Trade Representative (USTR) released their annual Special 301 Report that detailed the increase of piracy
worldwide.24 The Association of American Publishers (AAP) estimates that more than $600 million is lost each
year due to piracy.25
Who is Reading Books?
According to the BISG’s latest report, the total amount of time spent using media has increased, but the
hours spent actually reading books is decreasing. 26 The book industry has to compete with each person’s time, and
books are not a priority. Exhibit 2 shows the total estimated time and money spent by consumers on media from the
year 2000 to 2010, as reported by the U.S. Census Bureau and used as the basis for the BISG’s findings. Consumer
books, magazines, and newspaper categories are all experiencing a decline, while electronic media, including
television, is seeing an increase.
18 ibid . Accessed on April 17, 2008
20 . Accessed on April 17, 2008
21 . Accessed on April 17, 2008
22 . Accessed on April 17, 2008
24 , Accessed on April 17, 2008
Greco and Wharton webcast “The State of the Book Industry”, found at the Library of Congress website 6/28/2007
19 11 Journal of Business Case Studies – July/August 2010 Volume 6, Number 4 Exhibit 2: U.S. Census Data on Total Media Usage and Consumer Spending to 201027 In 1992, 60.9% of adults were reading, which dropped to 56.6% in 2002. 28 In addition, it appears that
females are reading more than males. 29 Exhibit 3 provides a breakdown of the number of male and female adults
reading from 1992 to 2002. Although this data is for the years 1992 to 2002, this trend is likely to continue into the
future.30 Another interesting trend to note is that adults between the years of 45 and 54 read the most, on average,
followed by those between 55 and 64 years old.31 Young adults between 18 and 24 read the least, but it is suggested
that the increase in technological advances and the competition for time from the internet and television is to
blame.32 Finally, the U.S. Census reports that those adults making an annual income of more than $75K per year
read more than those making less; in other words, the more you make, the more likely you are to read. 33
27 . Accessed on April 17, 2008
Greco and Wharton webcast “The State of the Book Industry”, found at the Library of Congress website 6/28/2007
31 . Accessed on April 17, 2008
Greco and Wharton webcast “The State of the Book Industry”, found at the Library of Congress website 6/28/2007
33 , Accessed on April 17, 2008
28 12 Journal of Business Case Studies – July/August 2010 Males
Females Volume 6, Number 4 Exhibit 3: Reading Patterns of Males vs. Females34
60.3% 2002
55.1% The Internet Phenomenon
According to the U.S. Census Bureau the adjusted Q42007 estimates for e-commerce retail sales were
reported at $36.2 billion (note: total retails sales for Q407 were $1,037.7B). 35 The total e-commerce estimated sales
for 2007 were $136.4 billion, which represents an increase of 19% from 2006. 36 The National Retail Federation
reports that on-line retails sales have gradually increased year after year. Additionally, in January 2008, a Nielsen
Global On-line Survey found that 41% of items purchased on-line were books, the most popular product purchased
over the Internet (second-most popular in US behind shoes, clothes, and accessories). 37
Print on Demand
Print on Demand or POD is a new technology emerging in the Publishing industry where books can
literally be printed on demand based on demand. However, this technology is fairly new and therefore more costly
than traditional printing. For example, the cost to print a typical Hardback bestseller is approximately $3.50 per
copy using traditional printing versus $5 – $8 per copy for Print on Demand.38 Nonetheless, the BISG predicts that
POD will be “the Library of the future”.39 This technology is beneficial to publishers because they can decrease the
amount of returns from the wholesalers and it is beneficial to the retailers because it allows a more efficient use of
shelf space. But POD is particularly beneficial to on-line retailers like where they do not have shelf
space to worry about. In fact, has included a POD subsidiary, BookSurge, in their corporate portfolio
to cut down on costs of printing.
In early 2007, Wall Street and the media began rumblings that the U.S. Economy was in trouble and
questioned whether or not a recession was inevitable.40 The U.S. had not experienced a recession since the
aftermath of September 11, 2001 terrorist attacks and the failing industry. 41 Experts attributed the troubled
economy mostly to the deteriorating housing market and the increase and subsequent defaulting subprime
mortgages.42 In an effort to fix the failing economy, President Bush announced on Friday January 18, 2008 his
proposal for a $145M economic stimulus package designed to get consumers to spend more money 43. By Monday
January 21, 2008, Wall Street and foreign markets all over the world experienced the worst decline in five years,
roughly 850 points in the Dow. 44 This hit in the market had a ripple effect on the economy including billions of
dollars of losses by the major U.S. banks, including Citigroup and Merrill Lynch 45. Statistics show that consumers
34 Table created by Wendy hall with information obtained from Greco and Wharton webcast “The State of the Book Industry”,
found at the Library of Congress website 6/28/2007
35 , Accessed on April 27, 2008
37 , Accessed on April 17, 2008
Greco and Wharton webcast “The State of the Book Industry”, found at the Library of Congress website 6/28/2007
Greco and Wharton webcast “The State of the Book Industry”, found at the Library of Congress website 6/28/2007
40 . Accessed on April 27, 2008
41 , Accessed on April 27, 2008
43 Accessed on April 27, 2008
44 , Accessed on
April 27, 2008
45 . Accessed on April 27, 2008 13 Journal of Business Case Studies – July/August 2010 Volume 6, Number 4 are spending less due to other factors such as increasing gas prices, increasing GDP (Gross Domestic Product),
increased unemployment, and a general fear of the unknown46. The National Retail Federation predicts retail sales
to increase only 3.5% in 2008, which is considered “the weakest pace of growth in six years.” 47 As of April 2008,
many organizations began to publish their Annual Reports and First Quarter Results, which in many cases stated
slow growth for the future and less than desirable results for the periods being reported. 48 Barnes & Noble, Inc. was
among one of these companies warning the investment community in a March 3, 2008 Press Release that
“recessionary pressures in this uncertain economic environment will make 2008 an especially challenging retail
The book industry is extremely competitive. Barnes & Noble’s sources of competition include other
traditional bookstores (Borders, Books-A-Million), other on-line retailers (, Borders, Books-AMillion), independent booksellers, new technology (downloadable mp3 audiobooks and new e-readers, etc.), and
other supply chains (Target, Wal-Mart, Costco, etc.). The American Booksellers Association reports that while 200
to 300 independent booksellers are closing each year, 115 new and independent bookstores opened in 2007, showing
consistent growth since 2005.50 51 In addition, alternate suppliers of books are on the rise.52 Specifically, Target,
Wal-Mart, Costco, Sam’s Club, drugstores, and grocery stores are stocking bestsellers at deep discounts. 53
Barnes & Noble’s annual 2007 store sales were reported at $4,648 million, while Borders’ annual 2007
store sales were reported at $3,774 million. Books-A-Million’s total Net Revenue for FY07 was $535,128,
(including $26.9M for on-line sales), which represents an increase from FY06 net revenues of $520M.
On-line sales for Barnes & Noble were reported at $476 million in 2007, while’s 2007
revenues were reported at $14,835 million. Barnes & Noble considers to be their biggest competitor. 54
Borders Group has an agreement with to operate their websites. 55 Under this agreement,
is responsible for setting prices, terms and conditions, and order processing, as well as recording the sale on their
books. Therefore, Borders has not recorded internet sales in their most recent 2007 annual report. This agreement is
up for renewal on a monthly basis and the company’s strategic plan is to finalize their own proprietary website
(, at which time the agreement with would be cancelled. 56 Exhibit 4
summarizes in-store and on-line sales for Barnes & Noble (B&N), Borders, Books-a-Million (BAM), and
Exhibit 4: Summary of Revenues for Barnes & Noble and their Major Competitors 57
In-Store Sales*
On-line Sales
*In-stores sales excludes B&N’s subsidiary B. Dalton Books and Borders’ subsidiary Waldenbooks
**Borders Group Sales include domestic and international sales
***Borders Group uses for internet sales and therefore did not report internet revenues in their 2007 Annual
46… Accessed on April 27, 2008
48 , Accessed on April 27, 2008
Barnes & Noble Press Release attached to their 2007 SEC Form 8-K, March 3, 2008
50 , Accessed on May 1, 2008
51 , Accessed on April 17, 2008
Greco and Wharton webcast “The State of the Book Industry”, found at the Library of Congress website 6/28/2007
Barnes & Noble’s SEC 10-K 2007 Annual Report, April 2008
Borders Group, Inc.’s SEC 10-K 2007 Annual Report, April 2008
Chart created by Wendy Hall with information obtained from 2007 Annual Reports/10-Ks for B&N, Borders Group, Books-AMillion, and, April 2008
47 14 Journal of Business Case Studies – July/August 2010 Volume 6, Number 4 Borders Group, Inc.
Borders is considered the second leading bookseller behind Barnes & Noble. 58 Unlike Barnes & Noble,
Borders does business internationally with superstores in Singapore, New Zealand, Australia, and Puerto Rico.
Similar to B&N, Borders owns the Waldenbooks subsidiary, located mainly in large indoor shopping malls, but also
includes locations in airports and outlet malls. Borders also owns 97% of Paperchase, a leading stationary store
retailing in the United Kingdom. Borders operates a total of 1,143 stores including 509 domestic superstores, 32
international superstores, 490 Waldenbooks stores, and 112 Paperchase stores. Borders superstores are similar in
design to Barnes & Noble superstores in that they are very large in size, averaging 24,700 square feet, and also
include an in-store café featuring Seattle’s Best coffee, a subsidiary of Starbucks. 59 In an effort to upgrade its
superstores, Borders opened its first “Concept” store in February 2008.60 The concept store allows customers to do a
wide variety of multimedia activities, including creating their own custom CD, making photo books, downloading
music, books, and movies, and more.61 Borders believes that the Concept store is important for long-term success
especially in the current competitive environment and plans to open 14 additional concept stores during fiscal year
When Borders’ President and Chief Executive, George L. Jones took over in 2006, the company was in
debt.63 With increasing reports that consumer spending will decrease along with the fact that Borders was short on
cash, a deal was made on April 9, 2008 with Pershing Square Capital to free up some much needed cash .64 Borders
carries a large inventory of music and movies and relies on sales of these products to meet their fiscal goals .65
According to their 2007 Annual Report, Borders has suffered a loss for the past 3 years and predicts that trend to
continue due to competition with other brick-and-mortar booksellers, internet retailers, and from companies that
offer the downloading of media.66 On March 20, 2008, the same day as Barnes & Noble’s Earnings Call, Borders
announced plans to start a “Strategic Alternative Review Process” 67 that would include the sale of the company. JP
Morgan and Merrill Lynch have been hired to provide financial consultation during this review. Barnes & Noble
Chief Financial Officer, Joseph Lombardi stated on their March 20, 2008 Earnings call that “they had not yet been
approached by Borders, but that they would definitely take a good look and put it under review.” 68 With ecommerce and technology hard upon the heals of traditional booksellers, Borders cannot afford to not compete in
this market; however, attempts to do just that failed in 2001 and led to the agreement with to sell
Borders’ products for them. 69 Borders advised in their 2007 Annual Report that they were uncertain if they would
make another attempt at retailing over the internet. 70
Books-A-Million (BAM) started as a corner newsstand in 1917 and currently operates 208 stores in the
United States, mainly the Southeastern part of the U.S. Of these stores, 184 are superstores while the remaining
stores are traditional stores.71 BAM also retails through their website at In the fiscal 58 , Accessed on March 25, 2008
Borders Group, Inc.’s SEC 10-K 2007 Annual Report, April 2008
64 and Borders Group, Inc.’s SEC 10-K
2007 Annual Report, April 2008
Borders Group, Inc.’s SEC 10-K 2007 Annual Report, April 2008
Barnes & Noble FY07 Earnings Conference Call, held on March 20, 2008 at 10:00 a.m. EST. The call can be accessed free of
charge as of April 28, 2008 from the company’s corporate website:
Borders Group, Inc.’s SEC 10-K 2007 Annual Report, April 2008
Books-A-Million’s SEC 10-K 2008 Annual Report, April 2008
Order Now