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Barnes & Noble is facing declining revenues due to changes in the book industry that have seen value migrate online and to e-books. This document analyzes Barnes & Noble's current strategy and market position, identifies key issues, and proposes two strategic options - an online-centric strategy to directly compete with Amazon, or a "Trailblazer" strategy focusing on a niche segment. It identifies avid and casual readers as the best target segments due to their needs aligning closely with Barnes & Noble's existing strengths over competitors like Amazon and local bookstores. The proposed strategy is for Barnes & Noble to focus on delivering unique value to avid and casual readers by improving convenience while strengthening areas like space to read and browse books.
B&NFinal
- 1. THE NEXT CHAPTER Value growth strategy for Barnes and Noble BY: KHRIS JORE, HUNTER GILLEZEAU, ELIZABETH MANAPSAL, KALI NOONEY, ANNA WIINBERG
- 2. INTRODUCTION Barnes & Noble is faced with declining revenues due to changes in the book industry where value has migrated away from traditional brick and mortar stores to mainly online retailers and e-books. Despite its attempts to adapt to these changes through the creation of its own e-reader, e-book content and e-commerce site, Barnes and Noble still faces declining profits. Mar ’06 $46.25 Feb ‘16 $9.07 This decline can be seen as a result of value migrating away from B&N’s offerings over the past 10 years, towards rivals such as Amazon.
- 3. About Barnes & Noble Today… • Mission statement: “To operate the best omni-channel specialty retail business in America, helping both our customers and booksellers reach their aspirations, while being a credit to the communities we serve” • Approximately $6B in sales as of 2015 annual report, fortune 500 company, listed on NYSE • Business segments: Retail stores, internet, digital and publishing • Entered e-book market in 2009 • Recently spun off its college business Online Only Credit: Association of American Publishers High Cost Brick and Mortar Low Cost Independent Retailers
- 4. What’s the current marketspace? • Consists of: online retailers, large retailers like Barnes & Noble and small specialty retailers • Major players: Amazon, Google, Apple, Barnes & Noble and Books-A-Million • Smaller retail bookstores appear to be making a come-back after the decline of large retailers • Has experienced major technological disruption in the past 5 years due to e-books, e-readers and an explosion of online retailers • Bookstores have been closing e.g. Borders in 2011: begs the question are brick and morter bookstores are dying? • When e-books first came out, they captured significant market share and experienced triple- digit growth, but this has since stagnated • In February 2016, bookstores experienced the first rise in sales since 2007, but not at B&N Publisher Revenue for Different Trade Formats Jan. - Sept. 2011-2015 Credit: Association of American Publishers
- 5. Value is migrating out of the large book store model and into e-commerce sites. If B&N continues on its current trajectory, B&N will become obsolete like Borders. • Continued revenue decline and decrease in shareholder value • Loss of market share to online retailers (Amazon) and other discount stores (Wal-Mart) • Brand equity erosion – from antiquated & expensive to obsolete • Failure to capture growth in e-book market • Amazon overtakes B&N as the primary book retailer and remains B&N’s toughest rival Value is migrating away from B&N… (In Millions)
- 6. CUSTOMER SELECTION AND VALUE PROPOSITION STRATEGIC CONTROL OPERATIONAL SCOPE VALUE CAPTURE / PROFIT MODEL • Value Proposition: Best omni-channel retailer providing extensive book selection and service • Internet: Extension of brick and mortar stores, doesn’t have its own personality • Nook: Color version geared mainly towards women who love to read; black and white geared towards older readers • 640 stores with an average of 26,000 square fleet in top locations across US • Only large book retailer left • Key partnerships e.g. Samsung with the Nook • Extensive inventory: 16 million titles in retail, $30 million online and $4 million digital book titles Nook: Selling e-books through the Nook line of e-readers • Selling Nook devices and accessories Retail: Selling Paper books, games, hobby and entertainment products • Small amounts of food/drinks sales in stores Online: Selling books via the Barnes and Noble website • 4 Segments: Retail stores, internet, digital and publishing • Widespread across verticals due to omni-channel approach • Much of operations centered around retail stores • Extensive inventory management system “Product Master” • Partnerships with Starbucks for in-store refreshments ORGANIZATIONAL SYSTEMS • Retail workers are generally book enthusiasts themselves. Retail work culture is relaxed, offers good work/life balance and structure. Online seems to be a bit more unstructured. • Corporate is described as “dynamic and team-oriented.” • New CEO may lead to some organizational unrest. • Books are the core of the store, but there are games, movies, music, etc to cater to a wide range of people STRATEGY TODAY
- 7. KEY ISSUES • Changing market landscape • Customer base prioritize convenience of delivery vs. brick & mortar retail experience • E-tailers are dominating the book market • Competition for “screen time” with internet browsing and other forms of personal entertainment • Underdeveloped digital reading product compared to competition • Alternative products occupy both the high-quality and low-price zones • Unclear who is the target market for the product • Devoted too many resources to supporting Nook and cannibalized other parts of the business • Let other parts of the business deteriorate • Unprofitable, asset intensive business • Poor utilization of brick & mortar stores to drive sales e.g. large square-footage and poorly allocated floor space • Most storefronts are leased • Eroding brand equity • Consumers associate B&N with being more expensive than Amazon • Disastrous launch and execution of Nook accelerating erosion • Identify how to deliver value to consumers in changing marketplace • What matters most to target consumers: in-store vs. online retail experience, product variation & availability • Identify and leverage unique assets • Barnes and Noble has several strategic assets relative to its competitors. How do we apply them effectively? • Other companies (eg. Netflix) have self-produced content to compete in tough markets. Can B&N do the same? • Focus on value capture • Selling books in a market where buying books is easy may not deliver high value by itself. How can we capture more value? • Align organizations and operation to support new value proposition • The current approach is ‘scattered’ to say the least. B&N is fighting on many fronts, few succesfully. • Focused strategy must be built in throughout the organization • Improve asset utilization • The big-box store model may not be pulling enough foot traffic to justify its cost. But what is the alternative? • What partnerships can be created to deliver value while Barnes and Noble focuses on its own core activities? • The cafes in Barnes and Noble stores currently see high utilization. Can the concept be extended? STRATEGY IMPLICATIONS Where are we and what does it mean moving forward?
- 8. Strengths ➔ Large book inventory both online and in stores ➔ Only large retail bookstore left in US ➔ Has diversified into publishing segment ➔ Partnership with Samsung ➔ Global footprint ➔ Nook as an asset ➔ Solid niche with kids’ and women’s romance books ➔ The store experience ➔ Household brand associated with books ➔ Print-On-Demand pilot for publishing at B&N Weaknesses ➔ Loss of capital investment from Liberty Media which injected $204M in investments. The company has since decided to slash its stake ➔ Held on firmly on a failed digital strategy too long, bleeding money and scaring investors away ➔ Loss of touch with the market and how it should reposition itself ➔ Stores are too big given demand and changing customer behavior towards online shopping ➔ Weak website user experience (UX) ➔ Prices not competitive ➔ Currently, no unique value proposition ➔ About a $10M severance pay for former CEO Opportunities ➔ Improve website user experience ➔ Optimize cafe ➔ E-Book sales expected to reach $67M by 2016, and tablet sales $253M by the same time ➔ Developing existing marketshare - pursue bigger share of wallet for avid readers ➔ Enhance publishing arm to create exclusive content ➔ Publishers willing to work with company - without B&N there is no future for publishers ➔ Gain customers by providing them with an above par experience Threats ➔ Uncertain market for physical books ➔ Reduced interest in shopping at brick & mortar stores ➔ B&N recognizes market is changing but its strategy to adapt has not worked very well ➔ Publishers no longer want to rely on B&N for business, and flock to independent book stores ➔ Amazon decides to venture into physical stores ➔ New entrant providing a business model that disrupts the industry, and eats up B&N’s market and wallet share S W O T
- 9. SO WHERE DO WE WANT TO BE? The objective of our proposed strategies is to reframe Barnes and Noble to make its model economically viable moving forward. The two proposed strategies both involve making bold commitments, albeit in opposite directions. Proposal 1 can be summarized as ‘if you cant beat them, join them’ and centers around a concerted new effort in digital sales; the direction of the overall market. Proposal 2 is to step away from the overall trend of the market and focus on a niche segment, one we believe Barnes and Noble has a valuable connection to and the potential to dominate, given a radical restructuring to focus on its existing strengths. Strategic Objectives
- 10. #1: “If you can’t beat them, join them” #2: “Trailblazer” • Online-centric strategy, consistent with the overall direction of value migration • Revamp online book sales portals, recommendations, and marketing • Invest heavily in app development for mobile sales • Diversify product mix and add general merchandise to capture Amazon’s customers • Adopt very robust omni-channel marketing efforts to sell books and general merchandise • Bring Nook manufacturing back in-house as tighter controls needed • Nook R&D develop a similar product to Kindle, which is cheaper and scaled back technically • Close stores to focus on competing online • Focus on dominating a smaller, more heterogeneous market. • Devise a different business model than the current one (and different from Amazon’s), focused on that market. • Invest in the capabilities that make B&N valuable to consumers, not in areas that make Amazon valuable • Streamline processes to make the book-buying and browsing experience more efficient • Partner with big publishers to create added value to invigorate the brand - exclusive content • Commit to building brand equity by killing sectors of business not aligned with new model • Commence value engineering of B&N that matches new business model • Invest in services that capture the new direction and add customer value Two Proposed Strategy Options
- 11. We segmented the market primarily using NEEDS… Reads books/mags about a particular interest (gardening, cooking, etc) Hobbyists Media Buyers No particular interest in books. Currently coming to B&N for DVDs/CDs. Parents buying books for their children. K-12 Buyers Mostly think about buying books as convenient presents. Gift Buyers Avid Readers Reads books frequently and recreationally. 10+ books per year. Casual Readers Reads periodically. Behavior is more driven by interest in particular books/ series than reading in general. Mostly reads publications or books related to their field. Professionals Reads assigned textbooks out of necessity. Students …because people use books for many different reasons. Understanding these helps us decide how we can uniquely serve some of these segments.
- 12. Offering analysis of key buying factors, buyer segments, and providers reveals Avid Readers and Casual Readers are best targets. • Amazon is intensely dominant in certain areas and as such, beats B&N for most segments. • For some of these it will be nearly impossible to out-do them. • Local Bookstores are superior in some regards (e.g. Sense of community) but overall do not beat B&N for any group. • Their market share may be possible to capture. • Two segments are more closely aligned with B&N than any other : Avid Readers and Casual Readers. Am azon Barnes& Noble LocalBookstores Hobbyists K-12ReadersGiftBuyersStudents ProfessionalsCasualReaders AvidReadersM ediaBuyers Food and Drinks 0 6 6 1 1 1 4 1 6 6 2 Space to Read 0 8 4 2 1 1 6 1 7 8 0 Sense of Community 1 6 7 7 2 1 3 2 5 7 0 People to Talk to About Books 1 6 8 5 6 5 3 2 7 8 0 Try-Before-Buy 2 9 7 4 1 2 3 2 6 7 0 Brand Associated with Reading 3 9 6 2 2 1 1 2 7 9 0 Fun to Browse 3 8 7 3 3 3 4 2 7 9 0 Convenient to Buy From 8 4 3 7 7 8 7 8 6 5 9 Customer Reviews 9 4 0 7 7 7 6 7 7 6 4 Large, Accessible Selection 9 7 4 4 4 6 3 2 6 8 0 Lowest Prices 9 7 5 5 5 7 7 6 4 3 0 Online Accesibility 10 6 0 7 5 7 6 7 4 3 7 Availability of Other Products 10 6 2 6 3 8 6 2 2 2 9 E-Reader Capability 10 7 0 5 1 1 7 7 5 3 0 Books in a Particular Field 10 7 4 10 8 2 8 8 4 1 0 Amazon Affinity 515 395 446 497 459 417 366 268 Barnes and Noble Affinity 474 343 363 475 365 558 585 160 Local Bookstores 278 212 205 260 178 370 417 57 COMPETITORS CUSTOMER SEGMENTS KEYBUYINGFACTORS
- 13. Professionals Media Buyers Gift Buyers Hobbyists K-12 Readers Students Avid Book Readers Casual Readers Currently Barnes and Noble is set up to cater to as broad an array of book buyers as possible, but most groups know what they want and can get it more conveniently from Amazon. Frequent book readers however are comparatively underserved. Barnes and Noble can tailor their strategy to deliver unique value to these readers. These readers appreciate space to read, being able to try a book before buying, a sense of community, and the joy of browsing through many books before making a choice – things that Amazon’s model does not currently provide.
- 14. STRATEGY STATEMENT BARNES AND NOBLE succeeds by focusing on PEOPLE WHO ENJOY READING The casual and avid reader groups are those who read often and for personal enjoyment. It’s difficult to size a group like that, but research suggests: WHO ARE THEY? • They skew female • They’re mid-20s all the way to 65+ • They’re more educated • They make higher incomes • They live in urban areas • There are more than 90 million of them in the US reading 10 plus books every year (Pew 2014) These are the people who read because they enjoy books and because they enjoy reading. (Part 1)
- 15. Why doesn’t Barnes and Noble dominate these groups now? We believe it’s a factor of the “convenience gap.” Estimated convenience scores (slide 8) 8 4 • Every customer segment is at least somewhat sensitive to convenience. • Amazon’s level of convenience is so staggering that it outweighs many of the advantages B&N has in other areas. • Barnes and NOBLES current one-big-box-store- per-city model (college stores excluded) detracts tremendously from its convenience while only minimally strengthening a few other value areas. A new model is necessary that will make B&N more accessible, and more convenient…. BUT… It must also extend B&N’s dominance in the areas where casual and avid readers are sensitive!
- 16. · How can B&N capture value for our target segment? Less Important Secondary Importance Critically Important Distinctive Competitive Weak Customer Importance/Value B&N Capabilities Takeaway: In order to succeed, our selected strategy will need to build on what our targeted segment loves; reading, browsing, and buying books.
- 17. Which strategy should B&N adopt going forward and why?i. • B&N’s new digital-centric value proposition would offer nothing different from Amazon. Why would customers buy from us? • Amazon is nigh-unbeatable with technology/web. • Following this strategy would mean the atrophy of B&N’s physical assets. • Retooling B&N to match Amazon’s business model would require significant capital expenditure. • This model doesn’t add enough value in the eyes of our target market, relative to the field. SOLUTION- Refocus our value proposition Old: That Big Bookstore… • One store per region – minimally accessible. • Typical “big box” store with rows and rows of books, difficult to navigate. • Generic décor and interiors; nothing memorable or worth coming back to. • Can’t easily browse for books or find space to read them to see if they’re worth buying. • Book prices are not competitive with Amazon; no reason to buy them from B&N. New: The Local Book Haven • Close down big box stores in key cities and open up smaller stores. • Reinvent the store to become a part of the neighborhood and not just a generic book store. • Reorganize store layout to make books more accessible, with plenty of space to browse and read. • Reduce books in unpopular genres and categories. • Host activities and workshops to foster a sense of community between book lovers and readers. • Create value-adds for readers. What book lovers want is a space where they can experience books… not just buy or order them. Our proposed strategy will aim to deliver that. The Problem With ‘If you cant beat them, join them’
- 18. OUR PROPOSAL: STRATEGY #2 NOBLES: Bookstore and Reading Lounge
- 19. NOBLES: A Home for Readers We propose moving away from the current big-box store model and opening small-to- medium sized stores scattered throughout major cities. These stores would maximize space by using nearly all wall-space for books, and a significant amount of floor space for comfortable seating. For these new stores, we propose the name NOBLES. STRATEGY TRADEOFFS • These smaller stores will not be able to carry the same huge selection. • Online sales must exist, but cannot be a major investment focus; we cannot beat Amazon here. • Customers accustomed to the big-box store model may be confused or lost • These stores will narrow marginal sales from products such as CDs, DVDs, board games etc., in order to focus on books and light food/drinks. • Logistics will be much more challenging with many small stores vs one or two large ones. • There are many options for people to buy books, but very few urban spaces optimized for people to actually read. • NOBLES creates book havens, offering both books to browse and places to read, in multiple locations throughout a city – extending our advantages where they exist and building convenience. • Light food and drinks will be sold to capture value through an additional complementary avenue. • NOBLES will aim to become the brand with which people who enjoy reading books identify. B&N will always lose to Amazon in broad technology. Amazon owns technology. B&N owns reading and luckily… people still love reading. STRATEGY STATEMENT BARNES AND NOBLE succeeds by focusing on people who enjoy reading and PROVIDING THEM CONVENIENT AND COMFORTABLE PLACES TO BUY AND ENJOY THEM (Part 2)
- 20. PERFORMANCE TIME ENVIRONMENT BRIDGE FABRIC THERAPY IDENTITY PUSHING VALUE LEVERS… In some areas, B&N cannot ever deliver more value than Amazon due to their proficiency with technology; however, in some areas we can develop a niche solution that appeals to deeper values for our target market. Better perceived performance Save user time and effort Provide enhances atmosphere or context Integrate pieces of a solution or solve conflict Foster user/buyer community Satisfy emotions or soothe stresses Reinforce self image, aid in self- expression VALUE CAPTURE EASY TO COPY HARD TO COPY Being an avid reader is still a deeply held part of a person’s identity… Amazon’s brand has very limited potential to appeal to this group. The NOBLES strategy will aim to capture deeper levels of value over time. Amazon’s technology cannot be beaten with our resources It’s easier to find a book on Amazon and it can often be delivered that day or the next. NOBLES will provide the optimal atmosphere for browsing and reading books. Coordinates end-to-end logistics between tens of thousands of vendors. NOBLES will provide a space where readers can meet as a community. NOBLES will aim to provide the most relaxing reading locations in the busiest cities. Ultimately Noble will be the brand people associate with book lovers.
- 21. BARNES AND NOBLE succeeds by focusing on people who enjoy reading and providing them the best book buying and reading experience, which we achieve through STORES, SERVICES, AND TECHNOLOGY FOCUSED ON THE EXPERIENCE OF READING. STRATEGY STATEMENT HOW DO WE CAPTURE VALUE? BOOK SALES IN-STORE FOOD AND DRINK SALES IN-STORE MONTHLY ‘BOOK BOXES’ FOR INTERESTED MEMBERS NOBLES HOSTED LOCAL COMMUNITY EVENTS PRODUCING SELF- BRANDED/ MARKETED BOOK SERIES DIRECT-TO-PHONE/TABLET BOOK SALES The foundation of NOBLES is a network of small bookstores/reading lounges, but the brand can capture value from several complementary streams, both leveraging and building its brand affinity to its target market: lovers of reading. BOOK RENTALS IN- STORE
- 22. BOOK SALES IN-STORE FOOD AND DRINK SALES IN-STORE MONTHLY ‘BOOK BOXES’ FOR INTERESTED MEMBERS NOBLES HOSTED LOCAL COMMUNITY EVENTS PRODUCING SELF-BRANDED/ MARKETED BOOK SERIES DIRECT-TO-PHONE/TABLET BOOK SALES ASSETS AND OPERATIONS “Conceiving is easy, delivering is hard work”...or “Don’t waste money on things customers wont pay for” • Medium-sized stores in metropolitan areas; ideally with high foot traffic • Warehouses and delivery trucks set up to rapidly ship deliveries to stores on a routine basis • Store staff who are passionate book lovers • Furniture likely to be a high expenditure as comfort is key for this model • Minimal additional needs not already covered by store supply chain • City sales and events manager to plan events and/or partner with community groups • Partnership with Etsy and similar marketplaces to provide weekly pop-ups for previously online-exclusive crafts. • Apps to allow customers to read their Nobles books via phone/tablet • Apps should be a portal for book discovery and suggestions as well as for in-store sales BOOK RENTALS IN-STORE • Minimal additional needs not already covered by store supply chain • Re-invest in Sterling Publishing (B&N owned) to revamp self- published title efforts • Content selection team created to review submissions and select works with mass-market potential • Promotional supplies to highlight these books in NOBLES stores • Partnerships with small local coffee shops (emphasizes NOBLES as a part of the community) for food and drinks • Will build bookstore locations adjoined to coffee shops to keep store space devoted to reading • App-based food/drink order system developed to allow patrons to order without getting up from reading
- 23. Strategic Controls Organizational Systems NOBLES CLUB • Customers using the NOBLES app will automatically have access to store deals, updates, suggestions, and event access – decreasing likelihood of switching. BRAND LEVERAGE • If NOBLES is able to successfully associate its brand with a love of reading, it will be hard for Amazon (a ‘jack of all trades’) to capture the market that self-identifies as passionate readers. EXCLUSIVE CONTENT • NOBLES will invest in its own self-branded series, as Netflix does. These will be available only through NOBLES. As a result, once readers are invested, they will need to keep coming back to NOBLES. Once we have it… how do we keep it? DATA ANALYTICS • By tracking data on books and users, NOBLES will be able to make smart recommendations and stock its stores intelligently for optimal sales. LOGISTICS • The smaller store sizes will necessitate lower stock levels of popular books. B&N will have to develop systems to rapidly and intelligently predict stock-outs and deliver resupplies. Once we have it… how do we keep it running smoothly? STAFF CULTURE • NOBLES is a store for passionate readers. Its staff needs to be comprised of the same. Applicants should be assessed accordingly, and employees should have a portion of their time allocated for discussions with patrons.
- 24. CUSTOMER SELECTION AND VALUE PROPOSITION STRATEGIC CONTROL OPERATIONAL SCOPE VALUE CAPTURE / PROFIT MODEL • B&N will engineer its value around the creation of NOBLES, a chain of smaller bookstores that caters towards avid readers, and has the coziness and community feeling of independent bookstores. • The target of this strategy will be the segment of the population that considers themselves avid readers and casual readers. • Books are the stars of the show and other services serve to enhance the reading experience. • NOBLES Club membership perks to incentivize a continuing relationship • Leveraging the Barnes and Noble brand to create the NOBLES brand, which will appeal to the personal identity of book lovers • Exclusive series released through NOBLES, ensuring that fans will be continued NOBLES members into the future NOBLES capture value from readers through: • Multiple NOBLES stores per large city, laid out to maximize comfortable reading space • Food and drink sales in-store for readers • Applications for mobile book purchase and consumption • NOBLES branded book series • Book rental services • Hosted community events in stores • Monthly ‘book boxes’ • Rental of mid-sized storefronts in downtown city areas • Warehouses and shipping trucks • Partnerships with printing presses and small, local coffee companies • App design and implementation • Event managers to arrange in-store community events ORGANIZATIONAL SYSTEMS • Data analytics leveraged to facilitate intelligent interactions with customers and smarter stocking • Book-lover culture must be evident in every store employee and HR systems must feed that culture. • Advanced logistics will be essential to balance book variety needs and supply need in the new medium sized stores. PROPOSED STRATEGY
- 25. Risks of Strategy Implementation RISKS MITIGATION STRATEGIES • Moving away from big box stores, which has been defined as an strength for many years • Focusing on books means that they are reducing product mix -> what happens if people stop buying books? • Even if B&N tries to create stores that mimic independent stores, consumers may still see them as a big box retailer and prefer “real” independent bookstores • Financial investment of breaking leases and investing in new spaces • Proposed strategy still does not provide level of convenience that Amazon offers • Roll out the strategy in phases, starting with 3 core cities such as Washington, Denver and Austin • By closely monitoring consumer behavior through improvement data management, B&N should be able to more closely match demand with supply • Offer food and drink promotions to entice customers to try out the new Nobles stores • Rolling out in phases will limit up front investment and allow B&N to test if the strategy works before investing in more stores • While we cannot offer the same level of convenience as Amazon, the coziness of the stores and better accessibility can narrow the ‘convenience gap’ The risks in an extreme strategy cannot be entirely erased, but a dramatic problem must be faced with an equally dramatic solution, because not to do so is to risk ceasing to exist altogether.
- 26. Required Actions 1. 2. 3. 4. 5. 6. Physical store structural changes: • End current leases • Identify smaller retail spaces • Move extra inventory to warehouses • Source local food and beverage providers • End contract with Starbucks • Reconfigure kitchen space to accommodate new vendor • Implement/improve data management in pilot cities • Define feedback loops – identify best-selling products/food/bev and carry additional inventory • Establish pilot store performance metrics to measure success • Retrain existing staff to embody new ethos and hire new employees to staff pilot stores • Develop local marketing campaigns in pilot cities • Generate word of mouth buzz by hosting cultural events (e.g. wine & cheese nights, game nights) • Cultivate exclusive content through independent authors and re- investment in Sterling Publishing • Develop best-in-class reader app (will be outsourced)
- 27. Financial Analysis Total Profit: $8,058,411 ROI: 65.6% (after 2 years) (In detail) We built a financial model for our proposed strategy (Appendix i) and conducted a sensitivity analysis to show areas where our assumptions might be risky (Tornado graph below). This analysis revealed high sensitivity to Total book Club Sales and Average Book price. As the former was entirely an assumption, we revised it down by 50%. The latter, being based on B&N data, was revised down by 17%. The analysis at right represents the more conservative assumptions. Revenue Total Revenue $17,759,800.00 Book Club $4,600,000.00 Café/Bar revenue $540,000.00 Book Box Membership $5,850,000.00 Events revenue $114,000.00 Content exclusivity $80,000.00 Nook Sales $263,800.00 Print-On-Demand $102,000.00 Store Book sales $6,210,000.00 Costs Assumptions New store costs Building lease costs $3,300,000 Events cost $15,000 Food&Drinks $50,000 Staffing costs $686,400 Total new store costs $4,051,400 Publishing Costs # of books 440,000 Avg. self publication costs $112,388.89 Avg. non self pub cost $400,000 Self-pub mix 20% Total publishing cost $512,389 Logistics costs Warehouse costs 2,700,000.00$ Book Box 100,500.00$ Losses due to damage/shortage $360,000 Biweekly delivery costs $3,000 Total logistics costs $3,163,500 Design & Furnishing Renovation Cost $90,000 Furniture $25,500 Interior Redesign Cost $210,000 Total Design & Furnishing Cost $325,500 Other Nook costs $4,300,000 Exclusive Content with Publishers $1,200,000 Total Other $5,500,000 SGA Costs (exc. Staff salaries) $200,000 Total Costs $9,701,389 Profit $8,058,411.11 Data Retail sales $4,100,000,000 # of Stores 648 Sales per store $6,327,160 Average store size 26,000 Retail sales per sq foot $243.35 Content publishing revenue $119,000,000 Assumptions % Book Revenue 90% New store sq foot 5500 Number of pilot stores 3 Cost / sq foot $200 Hourly wage $10 Staff members / store 5 Total # of books from Book Club 200,000 Book Box Members 150,000 Number of events/mo 5 Average book price $23.00 Total # of books sold in store 90,000
- 28. Financial Analysis (Key Takeaways) To test the impact of potential variations in our financial model, we built a simulation model to incorporate fluctuations in our assumptions. We built distributions for each variable and ran 10,000 simulations using the @RISK tool (results snapshot at right). • The average profit in the 10,000 simulations was $8.14 Million, slightly higher than our static estimate of $8.05. • 90% of simulations returned between $5.65 and $10.73 Million in profit. • The worst scenario returned a $2.8 Million profit and the best returned $14.6 Million. Given these results, we believe that the NOBLE initial campaign will show strong profits for Barnes and Noble within two years of implementation.
- 29. 1 B&N currently lacks a compelling and clear value proposition, and a radical overhaul of strategy is needed to move the company forward. Value is migrating away from the ‘big box’ store model towards online retailers but B&N cannot compete effectively here. B&N needs to shy away from emulating Amazon as they lack the strategic assets to present a threat to their model of offering consumers unmatched convenience and selection. Conclusions 2 We propose moving away from the big-box store model and opening small- to-medium sized stores scattered throughout major cities. These stores maximize space by using nearly all wall-space for books, and a significant amount of floor space for comfortable seating. They will also function as neighborhood hubs for community activities. They should emphasize comfort and a love of reading and draw revenue from multiple sources. 3 Pilot smaller stores in 3 cities with a high concentration of our targeted customers (Washington, DC; Austin, TX; Denver, CO) before wasting additional resources on the plummeting performance of the Nook. We estimate a $10M investment in these three cities and assume leveraging of existing logistics, warehouses, and publishing capabilities, resulting in increased sales per sq/ft, and brand value to book enthusiasts. If you cant beat them at their game, beat them at your game. To readers, coming to NOBLES should feel like coming home. Don’t go big… go small, in a big way.
- 30. One final word… The book market is shifting, and Barnes and Noble cannot continue to try to be all things to all segments of book purchasers. It can succeed however by being something special to people who value most what B&N does best: books. NOBLES is a home for people who love books. “It is no use saying ‘We are doing what we can’. We must succeed in doing what is necessary.” -Winston Churchill
- 31. THANK YOU! BY: KHRIS JORE, HUNTER GILLEZEAU, ELIZABETH MANAPSAL KALI NOONEY, ANNA WIINBERG
- 32. Profit Revenue Cost Store Costs Design & Furnishing Building Lease Costs # of Stores Gross costs (Books, etc) Cost/ Sq Ft Avg Sq Ft Logistics Costs Publishing Costs Staffing Costs Warehouse Costs Delivery Costs Staffing Costs Gross Costs (Printing) # of Books # of Books Avg Self Pub Cost Avg Non/Self Pub Cost Self-Pub Mix Avg book Price Book Rev Food/Drink Profit Monthly Book Sub Profit Monthly Book Sub Profit Events Profit Rental Profit Digital Profit AUXILLARY PROFITS MKT size MKT capture Marketing Costs Appendix i: Profit Model for NOBLES Strategy