Thursday, February 15, 2018

Is Barnes & Noble the New Borders Books + More?

B&N Union Square building before conversion 1970  Michael Cairns
There has been some distressing news over the past two weeks concerning the bookseller Barnes & Noble.  Admittedly, this news comes on the heels of a cycle of less than encouraging news from the bookseller over the past year.  As noted in Publishers Lunch, Abrams Capital, a large investor in the company, has thrown in the towel and sold up.  And across the business, both at the executive and store level, staff are being culled in what can only be viewed as a broad effort to decrease operating expenses.  Regrettably, the company appears to be trading long-term staff knowledge and expertise for the short term benefit of variable hour workers.

B&N has been a very well run company and benefits from a strong balance sheet.  Oddly, this specific strength means the company can maintain a long glide path to the negative in terms of decreased revenues, locations, profit and pretty much everything else.  They don't have to service any significant debt and can still pay a dividend without any problem.  That's not near good enough for investors like Abrams Capital.  Their exit can only be interpreted as a recognition that they don't see any significant changes in the way the business will be operated strategically nor do they see any ability for them - as a large investor - to influence the operations of the business.  On this basis, why would anyone invest in B&N as a shareholder?  Over the past year, the S&P retail price index hasn't been that awesome (up 4.5%) but that's a lot better than this:

It's all very sad.  The leadership of the business under the Riggio's may not have been universally liked but they were very good, respected retailers through the early 2000s.  It now appears the same family isn't that bothered about the circumstances that Barnes & Noble finds itself.

I was reminded of this situation in the slow (and then rapid) demise of Borders.  During one iteration of new management there I "rewrote" a letter to shareholders which the then CEO George Jones had penned (See "What Borders could have said".  I thought his effort pretty dire.  At its essence Jones seemed to be doing everything possible to avoid addressing their primary threats.  My summary read in part:
These are not issues that Borders faces exclusively, but over the past three years, the company has failed to proactively address these marketplace changes. While our in-store experience has grown confused and directionless, miss-steps in our internal operations now limit our ability to support an effective platform for growth. We have to admit that continued investment in our store management and merchandising technology will not produce or enable the rapid changes in operating efficiency that is required to effectively implement our strategic goals.

Now, similarities abound.

In contrast, there is innovation going on in retail.  B&N with their brand, reputation, store locations and infrastructure retain significant power and advantage against competitors but these diminish at the hands of mediocre and disinterested management.

This is how the recent National Retail Foundation meeting was described in Forbes:
Retailers are not simply retailers anymore. In fact, they are becoming innovators and the think tanks behind new products. 2017 was a huge year for retailers like Amazon and Wal-Mart. Both made huge strides in automation, virtual reality, robotics, and using the IoT. They've clearly embrace the digital transformation and NRF showed that other retailers are ready to embrace it too.

Amazon finally opened the much anticipated AmazonGo in January, where customers just walk in and get what they want and walk out without having to stop and pay a cashier. I, for one, can't wait till this technology reaches other retailers. Imagine how much faster a trip to the grocery store would be.
Wal-Mart is expanding their e-commerce footprint and continually using their “Store No 8” or their technology incubation center to test out new tech that could be scalable in the next five years. With their recent acquisition of e-commerce store, Wal-Mart is innovating day and night to change the customer experience for the better. “Whether it’s using VR and AR for associate training, automating the supply chain or using robotics in-store, Walmart and continually work to save customers time and money.”
Do you see B&N taking on these opportunities in the same way?  Like I said, SAD.

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