Barnes & Noble Needs To Get Out Of The Nook Business
Retailer Barnes & Noble (NYSE:BKS) has been on the receiving end of apocalyptic outlooks for the past year. Widespread negative sentiment has greatly suppressed Barnes & Noble stock price. As of this writing, its stock is trading at $14.79, intimately close to its 52-week low of $12.79. While investors would want to believe that the stock’s relative low price, paired with the prospect of reversed financial fortunes, merits a buy, this is not the case.
The first huge bottleneck to recovery for Barnes & Noble is the decision that the CEO of Nook Media, Michael Huseby, made after he was appointed earlier in the year following William Lynch’s resignation. Huseby went back on his predecessor’s decision to halt in-house manufacturing and sale of tablets. He not only reversed the decision, but he also said that the company would launch a new tablet this fall.
Michael Huseby may have huge dreams for the Nook business. However, as long as in-house Nook production goes on, Barnes & Noble will not be able to turn the ship.
How Bad Is The Nook Business Doing?
In its past earnings report, Barnes & Noble reported that its revenues had slipped 8.5% to $1.3 billion. Similarly, it pointed out that it was $87 million below the break-even point. While business in general was not good, the Nook segment, which includes devices, accessories, and digital content, presented the greatest drag. Sales of devices and accessories dipped 23.1% year on year to $84 million. Digital content sales also slipped to $69 million, signaling a 15.8% decline.
This sneak peek of Barnes & Noble’s past earnings puts things into perspective and clearly shows the huge drag that the Nook business is having on the retailer. It is time for a ,major rethinking of strategy.
Nook Is Not A Core Product And Should Not Be Treated As Such
In-house production of Nooks should not be a priority. This is because Barnes & Noble is not a tech company. It would be more profitable if it partnered with other tech companies and stuck to the content end of business.
Perhaps CEO Huseby believes that consumers will be inclined to warm up to the budget proposition that Nook tablets present. Indeed, Nook tablets top out at $149. This is significantly lower than competing tablets. The iPad mini, which is supposed to be Apple’s budget proposition, goes for $299. Amazon and Samsung can afford to play around with low price points because their sales volumes make up for their flexibility in pricing. This leaves the Nook in a uniquely unimpressive position. Not only does it fetch scraps per unit sale relative to competitors, but it also commands a paltry market share.
Barnes & Noble should get out of the Nook business before it mops up its coffers for a lost cause.
Perhaps the only shred of bullishness left is Barnes & Noble’s large footprint as far as brick and mortar bookstores go. Although digital distribution seems to have achieved success with ‘Generation Y’ titles (science fiction, love, and mystery), big general titles (which record the most sales) still need that push from actual brick and mortar bookstores. Barnes & Noble can leverage its large brick and mortar footprint to reposition itself and regain momentum. However, before any gains can be made, it must shed off the extra weight- the Nook business.
Disclosure: The author has no position in the stocks mentioned in this article, and does not intend to initiate any position in the next 48 hours.