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ECommerceTimes.com

Nook May Be Barnes & Noble's Salvation

By Rob Spiegel
Aug 30, 2011 12:04 PM PT

Barnes & Noble released its first-quarter earnings report on Tuesday, revealing that sales of its Nook e-reader and e-books have been helping to offset the company's sinking physical book sales.

Nook May Be Barnes & Noble's Salvation

Barnes & Noble Nook Color
The Barnes & Noble Nook Color

Total revenue was up 2 percent to US$1.42 billion. Store revenue was down 3 percent to $1 billion. Online revenue was up a whopping 37 percent to $198 million. The retailer posted a loss of $56.6 million, or 99 cents a share, for the quarter.

Barnes & Noble predicts a bump of between $150 and $200 million in the next year, with an expected influx of shoppers coming from the failed Borders chain. Barnes & Noble is expecting its highest holiday numbers in five years. It also forecasts sales of the Nook and e-books will more than double this fiscal year to $1.8 billion. The news sent the company's shares up 8 percent.

Barnes & Noble has bet its future on the success of the Nook. Sales of Nook devices rose 140 percent to $277 million for the quarter. Nook is the No. 2 dedicated e-reader after Amazon's Kindle. If the Nook lives up to the company's projections, it will account for a fourth of the chain's sales and all of its growth.

Nook Draws Big Investors

The Nook may be key to Barnes & Noble's credibility with investors. It has helped the company distance itself from the troubles that doomed its competitor Borders.

"First of all, the Nook is Barnes & Noble's only viable business, and it's the reason both [investors] Ron Burkle and John Malone have taken such an interest in the company," said Porter Bibb, managing partner, corporate finance, at MediaTech Capital Partners.

"Barnes & Noble will, inevitably, have to downsize its bricks and mortar empire," Bibb told the E-Commerce Times.

While Barnes & Noble continues to run a powerful retail chain of stores, those stores may be a burden rather than an asset in a publishing world that has very successfully taken the plunge into digital products.

"Print books will not disappear completely, but in June, for the first time in history, Amazon announced it sold more e-books than print books, said Bibb. "That trend is irreversible as more and more readers and tablets hit the market."

The Nook may end up the leading dedicated e-book reader once Amazon commits deeply to a tablet.

"The Nook is a super way to read and store books. Its features and functions make it far superior to the Kindle, unless price is the only criterion," said Bibb. "Amazon's tablet will obsolete the Kindle anyway, and Barnes & Noble should have the e-book market to itself in a year or two."

Barnes & Noble and its investors are betting that Amazon's tablet will take the company's eye off the Kindle. That could leave Barnes & Noble as the go-to company for consumers who want a device for books only.

"Sure, you can read books on an iPad or any other tablet, but enough people will want a dedicated e-book reader to give Barnes & Noble a viable future," said Bibb. He pointed to the continued popularity of the iPod as an example of consumer preference for a dedicated device.

"You can get songs on an iPhone or a tablet too, but millions of people still like their music on an iPod," he said.

B&N's Future Depends on Nook

The Nook platform is a valuable asset because it gives Barnes & Noble a way to directly distribute e-books to its readers. The Nook Color is also important because it integrates popular Android and tablet features.

"In many ways, Nook sales are a great predictor of future Barnes & Noble book sales, because the Barnes & Noble e-commerce site will supply most of the content that a Nook owner buys," said Carl Howe, director of anywhere consumer research at the Yankee Group.

"The Nook Color also broke new ground in attracting e-readers by using an Android color tablet as the base platform," he told the E-Commerce Times.

An Amazon tablet could shake things up a bit for the Nook.

"Nook sales may take a hit when Amazon introduces its own tablet, but I think there's plenty of room for multiple e-book and e-reader vendors in such a young market," said Howe. "E-books are where the growth in publishing is, so the Nook is the means by which Barnes & Noble is shaping its future business."


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