The Nook: An Unfortunate Retreat for Barnes & Noble, Inc. (BKS)

Barnes & Noble, Inc. (NYSE:BKS) will no longer have to bear the losses at its digital division when it breaks away from its Nook e-reader. Some investors now realize that the company really misread its bookselling business when it created the digital division.  It’s true that Amazon.com, Inc. (NASDAQ:AMZN) was having considerable success selling books online, which put enormous pressure on Barnes & Noble. But the latter company probably overreacted and perceived e-reading as the ultimate threat to its print-book business. Now, as it steps away from the Nook, Barnes & Noble, Inc. (NYSE:BKS) seems to believe that there’s still an open market for physical books.

Potential Loss of Store Customers

The naming of its digital division seemed to have foreshadowed the Nook business’s isolation. Nook has been nothing but an obscure and money-losing undertaking for Barnes & Noble, Inc. (NYSE:BKS). It’s never a good business idea to self-compete among different divisions within your own company.

Pitching the Nook against Barnes & Noble’s physical stores provided a perfect recipe for a disastrous business strategy. It almost amounted to business cannibalization, meaning that the more books sold on the Nook, potentially the less purchased at Barnes & Noble, Inc. (NYSE:BKS) stores. It was at best a zero-sum game for the company as a whole.

There’s no denying that physical bookselling now faces unprecedented challenges as digital-book sellers like Amazon.com, Inc. (NASDAQ:AMZN) and Apple Inc. (NASDAQ:AAPL) push further to improve the ease of their e-book distribution. E-books and the vast flow of free information on the Internet can make a trip to a bookstore, and buying physical books, less appealing. This may be especially true for occasional book buyers who don’t have an emotional attachment to the physical bookstore’s atmosphere, and thus can easily stop visiting such stores.

Focusing on Store Operations

To make up for the potential loss of customers to e-reading, Barnes & Noble has to find ways to promote itself and sell more books to its frequent and loyal customers. If that promoting process proves successful, Barnes & Noble may be able to attract some of those e-book customers back to its stores.

Given that its goal is to retain customers at its bookstores, building a digital book division is totally counterproductive for Barnes & Noble, Inc. (NYSE:BKS) — but winning the fight for store customers is still possible. A recent Bloomberg report indicates that despite e-books’ increasing popularity, print books still command 80% of the total market.

Getting readers interested in e-reading has become more of Amazon.com, Inc. (NASDAQ:AMZN) and Apple Inc. (NASDAQ:AAPL)’s business. The popularity of Apple’s iPad has given e-books another powerful publishing platform. The Apple’s iBookstore actually supports e-book downloads across Apple devices powered by its iBooks app.

Compared to Apple devices and the Kindle, the Nook has remained a second-rate product with limited functionalities.The Nook could be very much competing in the shadow of iBooks and Kindle Fire. As a physical bookstore operator, Barnes & Noble, Inc. (NYSE:BKS) is not suited for the digital book business, especially considering the mounting challenges from Apple Inc. (NASDAQ:AAPL) and Amazon, two of the most innovative companies.