For example, Home Depot in recent years has tried to bolster its service by hiring more floor staff as part of the chain’s ongoing battle with fellow home improvement giant Lowe’s. Best Buy, too, has indicated that a key aspect of its survival strategy is to rejuvenate the in-store experience.
What is unclear, however, is whether Barnes & Noble leadership sees people as important an asset as rolling out a new version of the Nook. To make that people investment, Barnes & Noble will have to steal a page from its old rival, Borders: Raff notes that the now-defunct bookseller used to give its employees knowledge tests during training to ensure that they had a thorough understanding of store layout and the books available.
When Barnes & Noble said on January 3 that sales for the nine-week holiday period would be weaker than expected, the most worrisome detail for analysts was the shortfall in digital sales. Nook device sales fell by an undisclosed amount during the holiday shopping season. According to Barnes & Noble CEO William Lynch, “Nook device sales got off to a good start over the Black Friday period, but then fell short of expectations for the balance of the holiday.” Lynch added that the company is “examining the root cause of the December shortfall in sales” and will adjust.
The Nook’s biggest shortcoming, analysts suggest, is that it doesn’t stand out in a crowded tablet market. Barnes & Noble appears to be caught between declining store sales and tough digital competition. “The significance of the deceleration calls into question whether a tipping point in digital is happening,” Stifel Nicolaus analyst David Schick said in a research note. “This has always been a potential concern, but evidence is beginning to mount that the iPad mini likely pressured sales of Nook tablets, and the Kindle Paperwhite was the clear favourite e-ink reader among critics and reviewers this holiday,” beating out the Nook GlowLight and SimpleTouch.
Barnes & Noble hasn’t been standing still, however. In 2012, the company forged partnerships with Microsoft, as well as publisher Pearson. On December 28, Barnes & Noble announced that Pearson had invested $89.5 million in the Nook unit, or 5% of the division. Microsoft owns 16.8% of the Nook division due to a $300 million investment in October and Barnes & Noble controls a 78.2% stake.
Those investments will continue to help the Nook division, which could eventually be spun off. The Nook business – devices and digital book sales – will have annual revenue of about $3 billion this fiscal year, according to Barnes & Noble. Fader suggests that Barnes & Noble can’t afford to take a “loss leader” approach to the Nook like Amazon does by selling the Kindle Fire largely at cost and then making money on sales of content and other goods. Barnes & Noble also has a challenge in building a digital ecosystem. “If it could build an ecosystem, great. But there are only so many ecosystems,” Fader notes. “Barnes & Noble will be crowded out.”
