Barnes & Noble: Price war between Amazon, Wal-Mart and Target is “overblown”

Nov 29 2009

There’s been a lot of controversy over the price wars between Amazon, Wal-Mart and Target over their recently adopted practice of selling bestsellers at deeply discounted prices (less than $9.00 for some new releases). Steve Riggio, CEO of Barnes & Noble appears to be unconcerned.

According to this article Top 2 Booksellers report losses Riggio made gave a statement to analysts regarding the price wars:

“Book-selling has been for a long time a ‘long tail’ business,” Riggio said during a conference call with investors. “Best sellers represent less than 5 percent of our sales and among these very top best sellers less than 1 percent of our sales.”

The long tail means retailers sell large numbers of unique items in small quantities and less popular items in much larger quantities (source). Based on that, Riggio’s comments make sense. If best sellers only represent less than 5% of sales for B&N, then it’s likely that Amazon, Wal-Mart and Target won’t make a noticeable dent in overall sales for B&N.

The other retailers might eat up some sales of best sellers, but consumers are still going to go to B&N for their wide selection of books. Not everyone is interested in reading only best sellers (I rarely buy them). Furthermore, selling best sellers at such a deep discount is unsustainable.

Will Nook save Barnes & Noble?

Even though sales are down at B&N (heck, sales are down across the board in retail), I think Nook, their new ebook reader, could be their lifeline for long-term profitability. According to the same article, demand for Nook has greatly exceeded expectations:

Barnes & Noble is pinning its hopes for future profit on the Nook, a competitor with Amazon.com’s Kindle for which it began accepting pre-orders last month. Last week, it said orders had exceeded expectations and those placed beginning Nov. 20 would be filled Jan. 4 or later.

Getting on the ebook bandwagon now, while ebooks are still relatively new, is a smart move for B&N. Other book stores who don’t embrace ebooks (i.e. Borders) will be left in the dust. And B&N plans to keep expanding its digital offerings:

The company plans to bulk up its e-content digital business, selling digital subscriptions to newspapers, blogs, magazines and other periodicals as well as digital books.

By expanding their digital content offerings, B&N is positioning itself to go head-to-head with Amazon in the ebook wars. B&N might already have an advantage because interested customers can play around with Nook before buying. I know I feel more comfortable buying something I can see and hold in my hands. Demo units of Nook will be available in most stores around December 1.

Overall, I don’t think B&N has to worry about chains like Wal-Mart sucking their business away by discounting best sellers. Like I said, chain book stores have such a vast selection of books (most are more profitable than best sellers anyway) that customers will usually chose a B&N over Wal-Mart if they’re looking for more than just best sellers.

What about Borders, you ask? I don’t think they pose much of a threat either:

In an effort to improve its finances, Borders, based in Ann Arbor, Mich., has cut jobs, closed stores and chosen new leaders. It also has shifted its focus from less profitable categories like music and toward children’s books, toys, stationery and its cafe.

I’m just wondering how much longer Borders will stay in business.

One Response

Barnes and Nobel does one thing well, and that’s sell books. Actual books and not e-books per se. The question is really, will ebooks be just as popular?

For me, they aren’t. I prefer a good solid book and not another electronic gizmo.

I quit going to Borders since they’ve ditched the music section. I guess I’m one of the few left that actually enjoys going to a music shop to buy my music.

Wayne John 1/20/2010 7:25 pm