The prevalent market sentiment is that the retail book store business is on the downward slide and may not be worth investing in. This sentiment was strengthened by the filing of bankruptcy by Borders. However, Barnes & Noble definitely does not seem to be going down that path. 68% of the company’s revenues in 2012 were from its retail business. And although, the sales figure have decreased year on year, it seems to be the result of the company trying to focus more on growing its Nook business rather than consolidating its retail business.
Competition to the Retail Business
The annual report states that “As of April 28, 2012, the Company operated 1,338 bookstores in 50 states, including 647 bookstores on college campuses.” Thus, the company has a healthy presence of book stores in the United States. With absence of any strong competitor in the retail business (bookstores), the company can actually strengthen its presence with the right strategies. And who better to do it than Leonard Riggio, who had grown Barnes & Noble across the country after buying the first store.
Amazon’s Online Competition
Theoretically, the company will face competition from Amazon in the online book sale business. I say theoretically, because Amazon in recent years has been selling each and every article possible on earth! Apart from books, the company sells music CDs, home and garden tools, grocery, health and beauty products, toys, sports articles and even automotive and industrial products. Thus, Barnes & Noble is well placed to attract the book lovers onto its website by concentrating its marketing strategies accordingly. Amazon, on the other hand, does not seem to be in a position to relook its strategy of concentrating on selling only books online, after venturing into the sale of other products. In fact, Amazon needs to take cognizance of this development very seriously. If the retail venture is able to reignite its past success, it won’t be long before customers are attracted to buying books online on Barnes & Noble’s website, and making Amazon only a general online retailer.
Investor Perspective
As an investor, how does this matter to me? Well, I would recommend the stock. If the chairman does go ahead with his offer, which it seems he will, the stock price will more likely than not go up to unlock the true value of the retail business. Additionally, the payoff from the sale of retail the business will also add to the value of the stock. However, one caution that I would suggest is that, once the deal is over (or after the spinoff of the retail business), it may not be advisable to hold on to the stock of the digital business (Nook media), especially after looking at its performance recently and the stiff competition being faced from its competitors.
The article Barnes & Noble – Chairman’s Buying, Should You? originally appeared on Fool.com and is written by Sujata Dutta.
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