How to Fix Barnes & Noble

You've heard it before: Barnes & Noble (NYSE: BKS  ) is in trouble. If it doesn't turn things around, it'll go the way of Borders.

Investors got a glimpse of this last week when the bookseller reported downright abominable earnings. For the three months ended April 27, it notched a loss from continuing operations of $122 million. It was the largest loss by far in the company's history.

In a magisterial display of self-delusion, CEO William Lynch nevertheless claimed that "[o]ur Retail and College businesses delivered strong financial performances in fiscal year 2013." To put that in context, same-store sales in its flagship retail division fell by 8.8% in the final quarter of its 2013 fiscal year.

To investors and anyone who cares about bookstores in general, its recent decline raises the question: Is there any way for Barnes & Noble to right its ship?

Will it pass the point of no return as, say, J.C. Penney (NYSE: JCP  ) appears to have done? In the first quarter this year, the department store chain continued to hemorrhage, with comparable sales falling by 16.6%.

Or can it engineer a turnaround like the one that may be under way at Best Buy (NYSE: BBY  ) ? As I discussed over the weekend, shares of the electronics giant have more than doubled this year on the heels of better-than-expected sales and a potentially game-changing partnership with Samsung -- the emphasis here is on "potentially."

In an attempt to answer this question, The Wall Street Journal asked a handful of writers, retailers, and book agents about what they would do to stanch the flow at the ailing bookseller.

The popular fiction writer James Patterson said that he would "make the stores feel like much more exciting places to shop," hold more events, improve signage, and feature less expensive paperbacks more prominently.

Peter Olson, a former book publishing executive, discussed ways of leveraging its "one real advantage: the traffic of loyal book browsers."

Let's start with people coming in to browse, which you can't do well online yet. They can take this loyal customer base that is willing to travel and leverage it by offering more than just the print books on the shelves. The customer base could be looking for a lot more in terms of rewards, such as a discount for volume shopping, bundling, and help in ordering alternative formats if a book isn't in the store.

And Gerald Storch, a former CEO of Toys R Us, took issue with its current strategy of diversifying away from its bread-and-butter physical book business through a larger selection of toys and games as well as its collection of e-readers and tablets. "What doesn't work is trying to change your customer or trying to expand your product offering dramatically beyond the historical offering of the brand. There are very few examples of successfully changing your customer base."

But while these suggestions may be good ideas, there's a simpler one that could be implemented today at no added cost: provide better customer service.

Over the weekend, I observed a sales associate at my local store in Beaverton, Ore., chide two parents to "rein their children in" -- this, mind you, occurred in the children's section. To be clear, the kids were doing nothing that average children wouldn't do. They weren't making a mess. And they weren't being particularly loud. They were just playing.

Was this an isolated incident? Perhaps, though it fits into a broader pattern of deterioration in the quality and quantity of service that, I believe, customers receive in Barnes & Noble stores.

The problem here is twofold. First, what's happening in the actual stores is inconsistent with the company's own publicly expressed aspirations. "You go to Barnes & Noble to forget about your everyday issues, to stay a while and relax," its CEO of retail stores said in a recent interview. "When you go to Bed Bath & Beyond, you don't sit down on the floor and curl up with your blender and your kid."

Second, it's inconsistent with Barnes & Noble's struggle to survive, if not prosper, economically. This simply won't happen in an environment in which employees view their customers as adversaries. When I observed the incident with the two parents above, I thought of this anecdote in Dale Carnagie's How to Win Friends and Influence People:

I spent an evening in the dressing room of Howard Thurston the last time he appeared on Broadway -- Thurston was the acknowledged dean of magicians. For forty years he had traveled all over the world, time and again, creating illusions, mystifying audiences, and making people gasp with astonishment. More than 60 million people had paid admission to his show, and he had made almost $2 million in profit.

I asked Mr. Thurston to tell me the secret of his success...

Did he have a superior knowledge of magic? No, he told me hundreds of books had been written about legerdemain and scores of people knew as much about it as he did. But he had two things that the others didn't have. First, he had the ability to put his personality across the footlights... But, in addition to that, Thurston had a genuine interest in people. He told me that many magicians would look at the audience and say to themselves, "Well, there is a bunch of suckers out there, a bunch of hicks; I'll fool them all right." But Thurston's method was totally different. He told me that every time he went on stage he said to himself: "I am grateful because these people come to see me. They make it possible for me to make my living in a very agreeable way. I'm going to give them the very best I possibly can."

He declared he never stepped in front of the footlights without first saying to himself over and over: "I love my audience. I love my audience." Ridiculous? Absurd? You are privileged to think anything you like. I am merely passing it on to you without comment as a recipe used by one of the most famous magicians of all time.

The point here is that Barnes & Noble can sell toys and games instead of books. It can hold more events at each of its stores. And it can improve its signage. But all of these are peripheral to the fundamental issue: If Barnes & Noble wants to survive, it needs to act that way. And it needs to do so every day, in every store, with every customer.

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  • Report this Comment On July 03, 2013, at 6:12 PM, stan8331 wrote:

    Definitely agree. It's a hard thing to do when you're losing money, but the only way I can see B&N surviving is by offering something online competitors can't - great in-person customer service. That won't impress investors in the short-term and may even worsen their short-term revenue situation, but If they spend their energy trying to figure out how to curb losses with their current business model, it's a path to bankruptcy. Better signage is not going to steal customers from Amazon. Offering people a unique, delightful experience when they come to a B&N store just might be enough to get the ship turned around before it's too late.

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