Monthly Archives: June 2013

The Barnes & Noble House of Cards is in Motion

I recently made myself a promise to remain silent unless I had something positive to say. Anyone who knows me knows this is not a personal strength but I want you to understand I am working on it.  I walked around the recent Book Expo (Print Book?) Show feeling like Rip Van Winkle passing through an industry that continues to operate in the same ways as 125 years ago, and just smiled and winked at the many ghosts passing down the aisles.

But this news today from Barnes & Noble brings me back to my chief concern for the future of print book publishing, and especially the authors to be impacted, which is their announced ongoing poor retail store performance.

As reported by Reuters: “The picture was also bleak in its retail business, consisting of its 675 bookstores and accounting for two-thirds of sales. Sales at stores open at least 15 months fell 8.8 percent last quarter. Barnes & Noble expects retail sales to be down by a high single digit percentage in its new fiscal year.”

You see it is all a house of cards and I lived through this during the decline of print photography and see so many parallels I would feel remiss for not sharing them even if they fall upon denying ears. The parallels are these:

1) The core print retail business erodes much faster than the internal denial plans for, with too-rosy financial assumptions (the people driving the bus understandably want to stay employed) proving to have been far too optimistic when viewed in hindsight. That escalating erosion plays hand in hand with:

2) You cannot continue to invest in new competitive digital areas like the Nook without a funding base, so both the new and the old are failing in tandem.  I witnessed this working for Konica in the 1990s and also watched it happen at Poloroid, Kodak, and others. What these giants had in common were huge investments with mega-retailers to push through huge volumes, via expensive multi-year contracts. And also huge investments in R&D digital image capture, edit, and share product ideas (e.g., cameras/phones, photo software, and send/storage).

3) This major retail erosion is truly bad news for the publishing Big Six in my view, who have built publishing models scaled on these superstore retail volumes. Increased royalty advances, larger print runs…all made possible by widespread retail presence through B&N and Borders (gone). The current consolidation is similar to what happened in the photo industry, when Konica merged with Minolta (and eventually wisely got out of consumer photo altogether). Sony also exited as did others. The new growth came from new players. The industry survivors rapidly downsized themselves to new smaller niche market segments (e.g., Nikon). And one of the world’s longest-standing, most-prized brands — Kodak — was brought to their knees. Impossible people thought.

So if you are a major publisher, with all those newly combined overheads and impending staff reductions, how do you make it work as your core retail business dries up? I do not pretend to have answers but based on what I saw in other industries forever altered by the digital revolution, would suggest that they need to take their best and brightest and put them to work with the West Coast best and brightest in launching new brands using new business models. Or buy new brands while they still have cash. The good news is the food will still be served, but it will be on a new plate, as Douglas Adams famously said over a decade ago.

And if I were B&N? I would be working hard and fast on a new store-within-store branded retail concept to go into supermarkets and mass merchants while the brand still has value. A combination of bestsellers and print-on-demand from a new wave of cheaper faster machines. This is what Fuji did in the photo business to stay afloat. Today, their self-service photo stations are everywhere from Walmart to Walgreens to Kroger. Kodak once had that space locked up but Fuji out-innovated them.

The good news in all this? The sooner we get through the painful transition, the faster the new jobs can be created. But sadly they will not be the same people, many of whom look like they are over sixty based on what I saw at Book Expo. The twenty-somethings will continue driving major new changes in the decades to come. I doubt there are many former Kodak people working at Facebook or Apple in the new world of consumer photo we all enjoy so much today. What happens to all the good “old” people is truly the saddest part of these disruptive changes and I sincerely hope they can manage a soft landing.

I promise…my next post will be extra bubbly to make up for this Debbie-Downer one.

— Caleb Mason