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Summary:

Brick and mortar bookstores may one day be a thing of the past, as the business is steadily shifting to the digital realm. Barnes & Noble released its latest financial picture, and the digital business is significantly out-pacing the physical side of the bookselling business.

Bookstore

Barnes & Noble’s digital business growth is out-pacing the in-store of the bookselling business, prompting the company to shift its resources. The bookseller released its fourth quarter results yesterday, and sales on BarnesandNoble.com increased 51 percent compared with the fourth quarter of last year, while in-store sales dropped 3 percent in that same time period. But will Barnes & Noble abandon its bricks and mortar stores to merely deliver bits, as the business is steadily shifts to the digital realm?

The company is planning “to redirect a significant portion of our financial resources towards investments in technology, sales and marketing” to better capitalize on the digital side of the business, according to CEO William Lynch according to the release. The company’s new focus on the digital business will be accompanied by the closing of six to ten brick and mortar stores a year for the next three years out of the 775 outlets in the U.S. From Lynch’s statement in the financial release:

“In fact, in just a brief 12 months since we launched the Barnes and Noble ebookstore, our share of the digital market already exceeds our share of the retail book market. … These investments will impact our bottom line in 2011, but we believe they will enable Barnes & Noble to capitalize on the significant mid-to-long-term growth opportunities presented by the digital markets.”

It will capitalize on digital in part thanks to its Nook e-reader, which is battling Amazon’s Kindle and even the iPad. However, the adoption of the agency pricing model for e-books can work in B&N’s favor as major publishers are setting the prices that can be charged for top-selling e-books. This restricts the ability of competitors from cutting prices to put more pressure on Barnes & Noble, which has a higher cost structure thanks to its physical presence. It remains to be seen how long B&N can continue to operate these expensive stores as more of its core business shifts to the digital realm.

Image credit: Flickr user ImaginaryGirl

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  1. The Apply Way Tuesday, June 29, 2010

    Better model would be to turn entire bookstore over to Apple and let them do all the heavy lifting while B&N just sits back and collects its 70 percent of pure profits.
    Apple has over 100 million fat credit cards at its call and the Nook just can’t touch that.

    I think Apple has finally gotten the publishers and booksellers attention much like the music industry. Apple is bringing them all along kicking and screaming into the 21st century but they will thank Steve in the long run for changing their business model for the better.

    Now if Apple could get into Banking just think of the possibilities for our overall economy done the Apple Way. We can dream can’t we. :-)

  2. It is quite shocking how fast Apple is changing the landscape of the publishing business. I can remember the same thing happening to the old music industry a few years ago before Steve Jobs stepped in and saved them. Looks like he is going to do the same for the book publishing industry as well. Props to the geniuses in Cupertino. This Apple induced tsunami seems unstoppable.

  3. it would seem the competition is not only apple but piracy. imagine bit torrent pdf magazines and reference books. big market there.

  4. If starbucks can sell coffee and make a profit, I don’t see why barnes and nobles can’t sell coffee and books and make a profit. The big deal is that (arguably) there is more money to be made/more room for growth online for less cost. As for Apple–sure you can sit back and let apple collect a percentage and do the work. However, whenever and wherever Apple dominates they have a tendency to squeeze other companies out and expand out to the next thing if they can. So while a company may want a piece of the apple pie, it might not pay to get fat and lazy–or else one day your company may have a choice whether to dance to apple’s tune or die (or not have that choice).

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