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photo: JOHNNY SIMON FOR THE WALL STREET JOURNAL (BARNES & NOBLE’S SUPERSTORE) OVERVIEW: Barnes & Noble’s retail model is under pressure from the growth of online booksellers and e-books Under the new pricing model, if sales of e-books take off, bookstores chains like Barnes & Noble wouldn’t generate enough revenue to support all of their stores Some in the industry envision the stores serving as a showroom for e-books and devices, and as a forum for authors LINKS: |
The Next Chapter
By JEFFREY A. TRACHTENBERG In a massive new Barnes & Noble superstore in New York, generous display space is devoted to products like baby blankets, stationery and board games. The unusual product mix may be a glimpse into the future of the nation’s largest bookstore chain. For 40 years, Barnes & Noble has dominated bookstore retailing. In the 1990s, it helped pioneer book superstores with built-in coffee shops and selections so vast that they put many independent bookstores out of business. Today it boasts 1,362 stores, including 719 superstores with 18.8 million square feet of retail space. But the revolution in digital media is rewriting the rules of the book industry. Downloadable electronic books account for only an estimated 3% to 5% of the market today. But spurred by devices like the Kindle and the iPad, and the growth of online bookstores, they are speeding the decline of physical books—forcing retailers, publishers, authors and agents to reinvent their business models. Just last month, Barnes & Noble announced that it was looking for a buyer to take over the company. “By the end of 2012, digital books will be 20% to 25% of unit sales,” predicts Mike Shatzkin, head of publishing consulting firm Idea Logical. “Add in another 25% of units sold online, and roughly half of all unit sales will be on the Internet.” This summer, Amazon.com reported that sales of e-books through its Kindle store are now outpacing sales of paper books. Google, too, plans an e-book store. NEW PRICING MODEL The e-book wave is tough for traditional bookstores, which were already under pressure from online-only booksellers like Amazon. Because e-books don’t require paper, printing presses, storage space or delivery trucks, they typically sell for less than half the price of a hardcover book. If physical book sales decline sharply, chain retailers won’t have enough revenue to support all their stores. When Apple launched the iPad this year, it ushered in a new approach to e-book pricing, where the publisher receives 70% of the digital price, while e-book sellers receive 30%. While some bestsellers remain at $9.99, many major authors are priced at $12.99 or $14.99. For online booksellers, this new model is good news: Instead of having to pay publishers half, or $12.50, for the e-book edition of a $25 hardcover, and then sell that book at a loss—for, say $9.99—to match Amazon’s cutthroat prices, the bookseller now gets 30% of the newly set $12.99 price, or $3.90. But for Barnes & Noble, the model can’t hide a brutal reality: $3.90 is a fraction of the $12.50 profit it now makes on a full-priced hardcover priced at $25. If e-book sales keep growing, store revenue would plunge. “The store model is under pressure, whichever way you look at it,” acknowledges Leonard Riggio, Barnes & Noble’s chairman. Barnes & Noble tiptoed into e-books when they first emerged in the 1990s, but backed out in 2003. E-book prices at the time—about $20 or more—turned off readers. And there were few titles to choose from. In November 2007, Amazon launched the Kindle and walked through the digital door that Barnes & Noble had left open. It would take Barnes & Noble two years to launch its own e-reader, the Nook. Today Amazon holds 70% to 80% of the digital-book business. UNIQUE ASSET This year, Barnes & Noble appointed a new CEO, William Lynch, who had run the retailer’s online bookstore. His strategy is to use the one asset Amazon and Google can’t match: the 719 superstores. Customers can test the Nook and get free, original in-store content. Mr. Lynch says Barnes & Noble now has 1.2 million titles in its e-bookstore and they are now accessible on more than 400 different devices. But Barnes & Noble faces tough competition from the iPad and Kindle, whose sales are far outpacing the Nook. The future of Barnes & Noble’s bookstores may boil down to one question: Will people prefer digital books as much as they preferred digital music? If that is the case, physical stores may all but disappear. Some in the industry say bookstores still have a role to play. “People love holding books,” Mr. Riggio says. They want their kids to go to bookstores. Kids want their parents to take them to bookstores.” Over the next few years, he says, a more diverse Barnes & Noble store will evolve, selling a variety of goods and serving as a showcase for digital products. Bestselling author James Patterson agrees. “Bookstores are still the best places to go for divergent ideas,” he says. “With fewer newspapers providing reviews, where will people go to find out about new books? Barnes & Noble will do that and give you more assistance with e-books. They have a future.”
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