The cause of Barnes & Noble’s downfall can be described in a word — Amazon. In 2002, Barnes & Noble made $109 million on sales of $4.9 billion. That same year, Amazon lost $149 million on revenue of $3.9 billion. Fast forward to 2011 when Amazon’s revenue reached $48.1 billion and it earned $631 million. Barnes & Noble lost $69 million on $7.1 billion last year. Amazon may sell consumer electronics equipment and internet streaming video products, but at its heart it is still the world’s largest bookstore. The highlight of Amazon’s recent quarter, in which revenue rose 29% to $12.8 billion, was that “Kindle Fire remains the No. 1 bestselling product across the millions of items available on Amazon.com since launch.” The product most visibly promoted on the Amazon.com home page? The Kindle.
Barnes & Noble’s legacy business is huge and expensive. As of its April proxy filing, the company operated 1,338 bookstores in 50 states, including 647 bookstores on college campuses. Obviously those stores require inventory, rent and personnel. And Barnes & Noble mentions “the maturity of the market for traditional retail stores” as one of the risk factors in its SEC filings. Is it any wonder that in its last fiscal year, Barnes & Noble had retail sales of $4.86 billion? That part of the company’s business shrank by 2%. Its Nook segment, which encompasses the digital business (including readers, digital content and accessories) had revenue of only $933 million. Digital sales rose 34% over the previous year, but remain a very modest portion of sales.
Barnes & Noble’s digital division is vulnerable. That is particularly clear when the market share of its Nook e-reader is taken into account. The Nook’s share of the US market is 27%, in contrast to a 60% share for Amazon’s Kindle and 10% for Apple, according to Reuters. Barnes & Noble is hopelessly outgunned online, and the retail book business has leveled off.
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