Barnes & Noble Is Riskier Than Ever

Barnes & Noble's (NYSE: BKS  ) CEO William Lynch is relinquishing his post in light of the bookseller's recent operational deterioration. However, whether his departure will actually help Barnes & Noble in the long run is another question altogether. We may sometimes talk about "story stocks," but this one's still looking like a tragedy.

Lynch is credited with the success of the Nook e-reader, but that product's recent performance has slowed down considerably as the company continues to face aggressive competition from Amazon.com's (NASDAQ: AMZN  ) Kindle. Meanwhile, Barnes & Noble has decided to exit from its tablet business, which also competed with the Kindle Fire, as well as products from Apple and Microsoft (NASDAQ: MSFT  ) .

For a while there, Lynch's tenure looked pretty good, with the company having hit the e-reader market hard and successfully while rival Borders struggled and flailed. Now, of course, the Nook's no longer looking like Barnes & Noble's salvation.

Did Barnes & Noble get too cocky about the customers it inherited when Borders went bust? That's not exactly an unfamiliar mistake on corporate managements' parts, and recent strategic stumbles have occurred on Lynch's watch. My Foolish colleague Rick Munarriz and I agree that Barnes & Noble looks an awful lot like Borders these days.

Borders' Ron Marshall resigned from the CEO post in 2010 after just one year at the helm. Borders officially filed for Chapter 11 in early 2011, providing many investment lessons about failing companies. Mike Edwards had the unenviable task of seeing that sinking ship right through to liquidation.

This also brings to mind Best Buy (NYSE: BBY  ) following Circuit City's demise. Losing such a major, massive rival probably can feel like getting money from home without asking. Of course some, or maybe even most, customers will defect to the surviving business. What management arguably underestimated was the continued and evolving competitive landscape, and their lack of competitive advantage in the brick-and-mortar space compared to Amazon.

This parallel applies to both Barnes & Noble and Best Buy. Amazon has emerged as a major threat to both.

If we look at many of these examples of struggle (and outright failure, in Borders' case), you'll find that the changing of the guard at the CEO level may not be that helpful when a company's standing deteriorates.

About a year ago, Best Buy brought Hubert Joly on board, replacing former CEO Brian Dunn. Best Buy enticed Joly with a compensation package worth $32 million over a three-year period. And let's face it: Twelve months later, there's little real proof of a Best Buy turnaround in sight despite investors' and analysts' current bullishness.

Out of the frying pan, into the fire
Just last weekend, I questioned Barnes & Noble's long-term survival -- and whether investors and consumers should even care if it goes away. Granted, Leonard Riggio -- founder and chairman -- is talking strategic alternatives at the moment. There's also a lot of speculation about Microsoft, which has taken a stake in the Nook business.

Still, while a different CEO with fresh ideas may turn around some companies, any management upheaval can make business more chaotic, particularly in the short term. Sadly enough, when things get really rough, a changing of the top guard can be a terrible distraction -- not to mention a way to lose traction.

Right now, there's no CEO announcement yet, but Michael Huseby is heading up the Nook unit as CEO and was named president of Barnes & Noble. He shouldn't be viewed as a compelling savior. Nothing personal, but he's been serving as the company's chief financial officer since March 2012, and has no prior experience in the retail business.

I'd caution investors to watch this drama from afar and avoid Barnes & Noble shares. There are too many parallels to other failed companies or difficult turnarounds here, and Lynch's departure doesn't look like a particularly heartening development, whether one considers his tenure a failure or not. "Out of the frying pan, into the fire" could end up being the name of this chapter of this scary work in progress, and that's no good for investors.

Barnes & Noble isn't the only retailer in a state of flux, of course. In fact, the entire retail space is in the midst of a paradigm shift. Which companies are poised to come out on top? Check out the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


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