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.
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