Why You Shouldn’t Invest in Barnes & Noble’s Unclear Future

With e-books on the rise and online stores beginning to replace neighborhood bookstores, Barnes & Noble  (NYSE: BKS  ) has become one of the few bookselling corporations left standing. Now, Barnes & Noble has made it its job to become No. 1 in the book retail industry. Unfortunately, it is slowly less and less able to fulfill its dream of being in the lead.

In its most recent annual report, the company mentioned that the biggest causes of its poor financial performance were the economic crisis, more competitors, and more customers buying iBooks and e-books online.

Barnes & Noble is spending ample money investing in more workers and more products to sell in order to contribute to the expansion of its non-book related products such as Nook accessories and software and other toys, games, and accessories . Trying to expand your business is always great, but trying to keep your customers interested in your products is a harder code to crack.

According to its 2012 annual report, the liquidation of Borders in early fiscal 2012 led to a decline in Barnes & Noble's own physical book sales. The 68.1% decrease in its B&N retail business in the company's fiscal 2012 could mean bad news for the company.  

Competitors such as Amazon.com  (NASDAQ: AMZN  ) have dominated the book and merchandise world, making it harder for Barnes & Noble to thrive. Amazon, as of fiscal 2012, controls more than 60% of the digital market with its online sales and the attention its most popular product, the Kindle, is receiving.

To not only improve on its sales, but also compete with Amazon 's Kindle, Barnes & Noble created the Nook. Since its release in fall 2009, Nook sales have helped the company keep its business up and running.

While sales from B&N's college bookstore operations decreased 1.9%, and retail sales fell 1.5%, its total sales of digital content and Nook hardware rose 34.3% to $933.5 million during fiscal 2012. But is this enough?

Wharton marketing professor Stephen Hoch predicts that Barnes & Noble will be less likely to survive Amazon's great influence on the market, because the former does not have the employees it needs to help promote its products and to help those products stand out. The Nook may be a foot in the door against other leading tablets such as the Kindle and iPad, but it does not particularly draw attention among those even more popular tablets.

According to Fool Leo Sun, Nook 's unit revenue during the 2012 holiday season plunged 12.6% to $311 million. According to The New York Times, the company says that losses in its Nook sales owed largely to lower-than-anticipated sales, inventory charges, and higher operating expenses because of advertising costs. This implies that the Nook may not be the best product on which to pin the company's hopes for making more money in the future

The Times reports that Barnes & Noble is considering selling off the Nook to Microsoft, in hopes that the latter company and its bigger household name can attract more customers to Nook e-books. The company hasn't finalized these plans yet.

E-books are on the rise, and Barnes & Noble has worked hard to make a name for itself in this new technological realm. However, the Nook may not be enough for it to make a substantial profit. While people can still electronically read their favorite books, they may not necessarily do so on one of Barnes & Noble's products.

In my opinion, if you're looking into buying stock from Barnes & Noble, be skeptical. It's fair to say that Barnes & Noble isn't sure where it's going, and potential stockholders shouldn't invest in a business that lacks confidence in its future.

 

To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they’re planning to ride the waves of retail's changing tide. You can access it by clicking here.


Read/Post Comments (1) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2503265, ~/Articles/ArticleHandler.aspx, 10/20/2014 9:07:57 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement