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Is Barnes & Noble the New Borders?

Rick Munarriz
July 9, 2013

Barnes & Noble (NYSE: BKS) isn't getting any closer to a storybook ending.

CEO William Lynch is resigning from the struggling book retailer, and more changes may be afoot as the chain continues to review its strategic alternatives.

Lynch was the head of the company's online retailing division when he was promoted in 2010. At the time it seemed to indicate an emphasis on the chain's digital initiatives. Barnes & Noble had decided to compete against (NASDAQ: AMZN) a year earlier by introducing the Nook, and was positioning itself to be a bigger force in media retail.

However, it isn't easy running a bookstore where prices need to stay high to cover the overhead of manning a physical store and running a website that's competitive with Amazon's cutthroat pricing. It's hard to fight both battles, because a Barnes & Noble shopper is -- by definition -- well read. Prices need to be consistent across both platforms, or buyers are going to know about it.

Nook could've been a game changer, and it seemed to have a shot initially as the retailer tied e-reader promotions to in-store visits. Unfortunately, Barnes & Noble was competing against Amazon's Kindle. The leading online retailer was brazen in its e-tail pricing, but it was even more aggressive when it came to its thriving e-reader business. Amazon was willing to sacrifice margins on the hardware, banking on making it back in its ecosystem.

Barnes & Noble didn't have much of a choice. It was forced into running its Nook business at a loss, but in a surprising show of validation last year, Microsoft (NASDAQ: MSFT) agreed to shell out $300 millio