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THE PENNSYLVANIA STATE UNIVERSITY
BA 422W Team One
Kevin Barney, Charles Canessa, Adrian Clarke, Nicole Cosenza, Matthew H...
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Contents
Executive Summary.................................................................................................
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Executive Summary
The purpose of this project is to secure Barnes & Noble's future as a powerhouse within
the book indus...
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The fourth strategy would be to offer the first two to three chapters of a book online until
the book is delivered to th...
5
Internal Analysis
Background Information
Barnes & Noble dates back to 1873 when Charles Barnes went into the used-book
b...
6
BOOK magazine shut down. The next year saw Barnes & Noble exit the video game retailing
business when it spun off its re...
7
B&N College is one of the largest contract operators of bookstores on college and
university campuses across the United ...
8
B&N College’s business strategy is to maintain long-term relationships with colleges and
universities by providing high-...
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guidelines for the effective functioning of the Board. The Board will review these guidelines and
other aspects of the C...
10
5. CEO’s Performance Evaluation: The CEO’s performance shall be evaluated annually by
the Compensation Committee as a r...
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Gross Profit Margin Operating Profit Margin Net Profit Margin
2012 26.80% 27.66% -.97%
2013 24.60% 27.82% -2.31%
2014 2...
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Financial Ratio Analysis
Profitability
Return on Equity (ROE) -3.82%
Earnings Per Share (EPS) $ -0.72
Return on Sales (...
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Activity
Total Asset Turnover 1.89
Accounts Receivable Turnover 41.95
Total Asset Turnover
This measures the amount of ...
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Debt to Equity
The debt to equity ratio measures how much financing for the company’s operations is
being funded by equ...
15
from operations is impacted by net income and changes in working capital. Net Income is
impacted by sales volume, seaso...
16
an extensive selection of book and book-related products which can be purchased in the
company’s numerous retail stores...
17
more. As of November 2014, 714 campus stores (DeLaMerced, 2015) represent approximately
25% of the United States Higher...
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importance and the distinction of being booksellers.” The mission statement is unclear to not
only the investors but co...
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External Analysis
The macro environment that affects Barnes and Noble includes four forces. These forces
are typically ...
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Increases in consumer spending via the Internet may significantly affect its ability to generate sales
in B&N Retail st...
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the second and third fiscal quarters, when college students generally purchase textbooks for the
upcoming semesters and...
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The College business’s sales are also affected by the overall economic environment,
including as a result of reductions...
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pricing, including requiring modifications or elimination of related pricing models including the
agency pricing model....
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People from the older demographic represent the biggest segment for the retail book
industry; however, as this generati...
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Barnes & Noble has aggressively forayed into the eBook market and combined with
NOOK, it has established a dominant pos...
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textbook rental and digital delivery. The Company is making further investments in its college
business. The Company be...
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distribution could overshadow Barnes & Noble's NOOK eReader, stunting the company's digital
growth initiative. Furtherm...
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faces competition from companies engaged in the business of selling books, music and movies
via electronic means, inclu...
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e-commerce and software. Key competitive factors in the industry include price awareness among
consumers, product quali...
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Porter’s Five Forces
Degree of Rivalry
Concentration and
balance of competitors
Industry Growth
Fixed/Storage Cost
Exit...
31
TOWS MATRIX
TOWS Strategy
SO1- Established Brand and Strategic
Alliances
Cultivate a partnership with Google and use
Go...
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WT2- Mission Statement is Inconsistent with
Actions of Management and White Collar
Society
Reorganize senior management...
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Linking Table
Strategic Issues Strategies Long-Term Objectives
Remaining competitive with
Amazon going forward, since
t...
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Criteria of Industry Attractiveness Criteria for Competitive Position
- 1-4 “Low” - 1-6 “Poor”
- 4-8 “Medium” - 6-12 “M...
35
7. An additional possible strategy to consider would to be sharing our warehouses with
Google to reduce our rent expens...
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instead of physical books. The reason is that they are cheaper, and much easier to acquire. If you
need a book you can ...
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 Turn a profit within three years, by increasing sales by 10% year over the next three
years.
 Within the next three ...
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Barnes & Noble lacks a successful e-commerce program; we suggest revamping the
website to better serve the needs of the...
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● Develop a strategic alliance with Google in order to increase Barnes & Noble’s digital
presence as well as its sales ...
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In order to develop a successful implementation of the recommended strategies Barnes &
Noble will address financial, in...
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The goal is not only to increase sales through Google Shop, but Barnes & Noble’s overall
digital presence in general. T...
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increase customer awareness about its specific capabilities. It will then be directly marketed to
Barnes & Noble’s coll...
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conclude this, we’ve created a TOWS matrix, strategy screening table, strategy linking table, and
GE matrix. Porter’s F...
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WorksCited
Barnes& Noble.(2014). AnnualReport. Retrieved2015, fromBarnes& Noble Inc:
http://www.barnesandnobleinc.com/d...
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Appendix
Horizontal Analysis
(In Billions) 2012 2013 2014 Change ‘12 to ‘13 Change ‘13 to ‘14
Sales 7.13 6.84 6.38 (0.2...
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Common Size for 2014
Barnes and Noble Amazon Industry
Sales 100.0% 100.0% 100.0%
Cost of Goods Sold 74.3% 70.5% 68.0%
G...
47
Google Partnership
Pro Forma Income Statement
In Thousands
YEAR 2015 2016 2017
Sales 9,295,000 9,480,900 9,670,518
LESS...
48
Nexus Tablets in Colleges
Pro Forma Income Statement
In Thousands
YEAR 2015 2016 2017
Sales 7,605,000 7,757,100 7,912,2...
49
Forecasted Income Statement
Pro Forma Income Statement
In Thousands
YEAR 2015 2016 2017
Sales
16,900,000 17,238,000 17,...
50
Balance Sheet
2012 2013 2014
Assets:
Cash 54.13M 160.47M 340.17M
Accounts Receivable 169.95M 149.37M 143.98M
Inventory ...
51
Income Statement
2012 2013 2014
Sales 7.13B 6.84B 6.38B
Cost of Goods Sold 5.44B 5.38B 4.74B
Gross Profit 1.68B 1.46B 1...
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Strategic Analysis on Barnes and Noble

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Strategic Analysis on Barnes and Noble

  1. 1. THE PENNSYLVANIA STATE UNIVERSITY BA 422W Team One Kevin Barney, Charles Canessa, Adrian Clarke, Nicole Cosenza, Matthew Handwerk 4/28/2015
  2. 2. 2 Contents Executive Summary........................................................................................................................ 3 Internal Analysis ............................................................................................................................. 5 External Analysis .......................................................................................................................... 19 Strategic Issues to be addressed.................................................................................................... 34 Proposed Objectives...................................................................................................................... 36 Strategic Choices and Recommendations..................................................................................... 37 Strategic Choice ............................................................................................................................ 38 Evaluation and Control ................................................................................................................. 42 Conclusion .................................................................................................................................... 42 Works Cited .................................................................................................................................. 44 Appendix....................................................................................................................................... 45 Vertical Analysis for 2014 ............................................................................................................ 45 Common Size for 2014 ................................................................................................................. 46 Financial Ratios............................................................................................................................. 46
  3. 3. 3 Executive Summary The purpose of this project is to secure Barnes & Noble's future as a powerhouse within the book industry once again. With competitors such as Amazon, it is no wonder why it is so difficult for them to compete. Barnes & Noble's current strategy is not working and is bringing them ever closer to their own demise. We've decided to create a fully comprehensive strategy that will actually save Barnes & Noble, and will make them relevant once again. These strategies are backed up with a large amount of marketing research. There are a few strategic issues that Barnes & Noble is currently dealing with. Currently, there is a huge reduction in profit margins due to stiff competition, they're operating at a net loss, and they are spending money on stores operating independently. Lately, there has also been a huge decrease in physical book sales due to eBooks. Barnes & Noble is also strongly lacking support activities. They lost $1 billion in their e-reading device, and have not spent any money in research and development in the past 4 years. We’ve created ten strategies to possibly implement for Barnes & Noble. First, we need to rebuild our corporate governance issues; this includes addressing the mission statement which needs to be remodeled and also making necessary changes in B&N’s top managerial positions. Second, Barnes & Noble lacks a successful e-commerce program; we suggest revamping the website to better serve the needs of the customers, including customer recommendations and an enhanced loyalty program. The third strategy would be to partner with Android Operating Systems in creating an application for mobile phones that are preloaded onto the phone. This application will allow customers to read books on the go, without having to carry a tablet or e- reading device.
  4. 4. 4 The fourth strategy would be to offer the first two to three chapters of a book online until the book is delivered to the client. The next strategy would be to implement a universal code and policy to ensure that all Barnes & Noble stores are functioning as a single cohesive unit. Another alternative strategy to consider would be offering a “GOOGLE Stop” in selected stores. This designated area would serve people to use the services that Google currently offers and can place orders for items. An additional possible strategy to consider would to be sharing our warehouses with Google to reduce our rent expenses. We could offer them to use our current facilities at a charge of 25%. Our next strategy would be to offer “real estate” on our website. This would allow outside companies to promote their products on our website, in return for “real estate” on their website. Our final two strategies would be to partner with Google in order to gain advantage of all of their resources, and to use Google’s connections to have an e-reading device created for Barnes & Noble. Our first strategy we’ve chosen is for Barnes & Noble to strike a strategic alliance with Google in order to use their resources such as Google shop and the real-estate on their website. Our second chosen strategy will be to create our own e-reading device using Google's connections. We plan to create an e-reading device that is competitive with other similar devices such as the Kindle Fire. The investment required to achieve these strategies will be $250 million. We feel comfortable with this amount invested. It is not unreasonable, and the financial benefits are immense. These strategies aim to generate Barnes & Noble $1 billion within 3 years.
  5. 5. 5 Internal Analysis Background Information Barnes & Noble dates back to 1873 when Charles Barnes went into the used-book business in Wheaton, Illinois. By the turn of the century, he was operating a thriving bookselling operation in Chicago. His son William took over as president in 1902. William sold his share in the firm in 1917 (to C. W. Follett, who built Follett Corp.) and moved to New York City, where he bought an interest in established textbook wholesalers Noble & Noble. The company was soon renamed Barnes & Noble. It first sold mainly to colleges and libraries, providing textbooks and opening a large Fifth Avenue shop. Over the next three decades, Barnes & Noble became one of the leading booksellers in the New York region. Enter Leonard Riggio, who worked at a New York University bookstore to help pay for night school. In 1971, Riggio paid $1.2 million for the Barnes & Noble store on Fifth Avenue. He soon expanded the store, and in 1974 he began offering jaw-dropping, competitor-maddening discounts of up to 40% for best-sellers. Acquiring Marlboro Books five years later, the company entered the mail-order and publishing business. By 1986 Barnes & Noble had grown to about 180 outlets (including 142 college bookstores). With superstore sales booming, the retailer went public in 1993. The bookseller went online in 1997, and in 1998 sold a 50% stake in its Web operation subsidiary to Bertelsmann (which it re-purchased in 2003) in an attempt to strengthen both companies in the battle against online rival Amazon.com. Also in 1998 Barnes & Noble agreed to buy #1 US book distributor Ingram Book Group, but the deal was called off in 1999 because of antitrust concerns. In 2003, the company beefed up its self-publishing efforts with the purchase of Sterling Publishing, a specialist in how-to and craft books. In addition, Barnes & Noble's half-owned
  6. 6. 6 BOOK magazine shut down. The next year saw Barnes & Noble exit the video game retailing business when it spun off its remaining shares in GameStop. Barnes & Noble closed the last of its small-format B. Dalton bookstores in early 2010. Later in the year hedge fund manager William Ackman offered to finance a $960 million merger of Barnes & Noble and its smaller rival Borders but nothing came of it. CEO Lynch resigned in mid-2013 following an earnings report that underscored Barnes & Noble's failed attempt at building up its Nook division. CFO Michael Huseby was appointed chief executive of the Nook division and president of Barnes & Noble. Business Scope Barnes & Noble, Inc. (Barnes & Noble) is a multi-channel retailer. B&N’s principal business is the sale of books, mass markets paperbacks, educational textbooks, children’s books, eBooks, and other digital content, among various other items. The variances of books include hardcover, paperback, and digital versions. The company markets products through its retail stores, which include Barnes & Noble College Booksellers, LLC and Sterling Publishing Co., Inc. It publishes a wide range of non-fiction and illustrated books and kits across a variety of imprints. Barnes and Noble is a Fortune 500 company, the nation’s largest brick and mortar bookseller and a top retailer of content, digital media and educational products. The Company’s common stock is traded on the New York Stock Exchange (NYSE) under the symbol BKS. As of January 31st, 2015, B&N operates 717 bookstores serving over 5 million students and more than 250,000 faculty members at colleges and universities across the United States. The company has three primary operating firms: Barnes and Noble Bookseller, Barnes and Noble College and the Nook.
  7. 7. 7 B&N College is one of the largest contract operators of bookstores on college and university campuses across the United States. As of May 3, 2014, B&N College operated 700 stores nationwide. These stores are operated under 448 contracts, which can cover multiple stores and include over 5 million students and faculty. B&N College’s customer base, which is mainly comprised of students and faculty, can purchase various items from their campus stores, including textbooks, textbook rentals and course-related materials, emblematic apparel and gifts, trade books, computer products, NOOK ® products and related accessories, school and dorm supplies, convenience and café items. B&N College provides extensive textbook rental options to its customers and has expanded its digital textbooks and other course materials through a proprietary digital platform (Yuzu™). A significant number of textbooks are now available in multiple formats: new, used, rental and digital (rental and ownership), resulting in improved choice and substantial student savings (SEC Filing, 2014). B&N College operates 664 traditional college bookstores and 36 academic superstores, which are generally larger in size, offer cafés and provide a sense of community that engages the surrounding campus and local communities in college activities and culture. The traditional bookstores range in size up to 48,000 square feet. The academic superstores range in size from 8,000 to 111,000 square feet. The company generally operates its stores pursuant to multi-year management service agreements under which a school designates B&N College to operate the official school bookstore on campus and B&N College provides the school with regular payments that represent a percentage of store sales and, in some cases, include a minimum fixed guarantee.
  8. 8. 8 B&N College’s business strategy is to maintain long-term relationships with colleges and universities by providing high-quality service to college administrators, faculty and students. B&N College is poised for continued growth with approximately 55% of college bookstores in the United States being operated by the educational institutions themselves. B&N College believes it will achieve this by increasing market share through new account acquisition and through strategic planning and outreach with its existing accounts to exploit opportunities and grow market share (Barnes and Noble Inc., 2012). NOOK segment includes the Company’s digital business, including the development and support of the Company’s NOOK® product offerings. The digital business includes digital content such as eBooks, digital newsstand, apps and sales of NOOK® devices and accessories to third party distribution partners, B&N Retail and B&N College. MissionStatement Our mission is to operate the best specialty retail business in America, regardless of the product we sell. Because the product we sell is books,our aspirations must be consistent with the promise and the ideals of the volumes which line our shelves. To say that our mission exists independent of the product we sell is to demean the importance and the distinction of being booksellers. As booksellers we are determined to be the very best in our business,regardless of the size, pedigree or inclinations of our competitors. We will continue to bring our industry nuances of style and approaches to bookselling which are consistent with our evolving aspirations. Above all, we expect to be a credit to the communities we serve, a valuable resource to our customers, and a place where our dedicated booksellers can grow and prosper. Toward this end we will not only listen to our customers and booksellers but embrace the idea that the Company is at their service (Barnes and Noble, 2011). Corporate Governance The following Corporate Governance Guidelines have been adopted by the Board of Directors (the “Board”) of Barnes & Noble, Inc. (the “Company”) to provide a framework for the governance of the Company and to assist the Board in the exercise of its responsibilities to the Company and its stockholders. These guidelines are intended to provide a set of flexible
  9. 9. 9 guidelines for the effective functioning of the Board. The Board will review these guidelines and other aspects of the Company’s governance periodically and may modify or amend these guidelines and the authority and responsibilities of the Board set forth in these guidelines at any time. Due to the extensive nature of such guidelines and processes, the following bullets summarize at a broad level what is assumed to be most important and relevant with regard to effective corporate governance processes (Corporate Governance Guideline, 2011). 1. Direct the Affairs of the Company for the Benefit of Stockholders: The primary responsibility of directors of the Company is to oversee the affairs of the Company for the benefit of stockholders. 2. Long Range Strategy Development: Long range strategic issues should be discussed as a matter of course at regular Board meetings. 3. Review of Financial Goals and Performance: The Board reviews the annual operating plan and specific goals at the start of the fiscal year and financial performance quarterly (actual and in comparison to plan). The Board also believes it is important to establish and evaluate both short and longer term objectives. 4. Ethical Business Environment: The Board insists on an ethical business environment that focuses on adherence to both the letter and the spirit of regulatory and legal mandates. The Board expects that management will conduct operations in a manner supportive of this view and in adherence to the policies comprising the Company’s Code of Business Conduct and Ethics. The Board is committed to avoiding any transactions that compromise, or appear to compromise, director independence.
  10. 10. 10 5. CEO’s Performance Evaluation: The CEO’s performance shall be evaluated annually by the Compensation Committee as a regular part of any decision with respect to the CEO’s compensation. 6. Periodic Review of These Guidelines: The operation of the Board is a dynamic and evolving process. Accordingly, these guidelines will be reviewed periodically by the Corporate Governance & Nominating Committee and any recommended revisions will be submitted to the full Board for consideration (Corporate Governance Guideline, 2011). Performance Sales (Billions) 2012 2013 2014 Sales 7.13 6.84 6.38 Yearly Growth -4.2% -7.2% The decline in sales and the increased earnings were due in part to the same factor—the trend among students to rent textbooks rather than buy them. Sales also declined because most individuals do not physically go to bookstores anymore and would rather have a book shipped to them. There is also a trend that many people are not reading as much as they use to due to the fact that there are many other options to do because of technology. From 2012 to 2014 sales declined dramatically decreasing a total of 11.8% over only a two year period which is a dramatic decrease and signifies there is a major problem with the company, industry or economy. Earnings
  11. 11. 11 Gross Profit Margin Operating Profit Margin Net Profit Margin 2012 26.80% 27.66% -.97% 2013 24.60% 27.82% -2.31% 2014 29.12% 28.58% -.74% The profitability of Barnes and Noble can be observed through their gross, operating and net profit margins. Their gross profit margin is steadily increasing over the 2012 to 2014 period, which means the company is spending less on their cost of goods sold, and retaining more of their profit to use for operations. In 2014, for every dollar the company makes from sales they retain $0.29 for use to cover operating expenses. To continue to reduce this cost, the firm has to decrease the cost for materials used to make their books and other products Barnes and Noble sells. Operating profit margin is after all of their marketing expenses, book keeping expenses and other expenses not directly related to producing the finished product are factored in, they retain 42% of sales or use 29% of their sales on operating profit margin for 2014. Net profit margin measures the profitability of the company and is recognized as either net income or net loss on the income statement. Even though Barnes and Noble is at a net loss, they are decreasing their expenses and in a sounder financial position from 2013 to 2014.
  12. 12. 12 Financial Ratio Analysis Profitability Return on Equity (ROE) -3.82% Earnings Per Share (EPS) $ -0.72 Return on Sales (ROS) -.01 Return on Equity Return on equity, ROE, measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. ROE also gives the stockholder a picture of how well the company is investing their common stock into their operations. Since Barnes and Noble is recovering from many corporate and companywide issues, they are not profitable. Earnings Per Share The company paid a dividend to preferred shareholders in the amount of $15,768 and $15,767 in fiscal 2014 and fiscal 2013, respectively. The Company paid no dividends to common stockholders during fiscal 2014 and 2013. This means that Barnes and Noble will have to accrue dividends for common stock holders and the longer they wait to pay them the more it will hurt the stock price and affect their stakeholders. Return on Sales After having a net loss many years in a row, Barnes and Noble is doing better. They are almost at a break-even point and are looking to become profitable within the next 3 years. Their gross sales have shrunk tremendously over the past three years by over 10% but Barnes and Noble is doing a great job at cutting costs which is helping their bottom-line.
  13. 13. 13 Activity Total Asset Turnover 1.89 Accounts Receivable Turnover 41.95 Total Asset Turnover This measures the amount of sales generated per dollar of asset. Having a total asset turnover of 2, means that Barnes and Noble is using their assets very efficiently. Accounts Receivable Turnover Accounts receivable turnover measures how well the company collects is monies owed by customers as well as extending credit to new customers. The average length of accounts receivable turnover is 30 days and being at 42 days denotes that they are not doing well at collecting their customers’ debt. Liquidity Current Ratio 1.12 Debt to Equity 2.63 Current Ratio The current ratio measures if a firm has enough assets to cover its debts for the next year. Barnes and Noble is able to pay its debts on time and has good credit.
  14. 14. 14 Debt to Equity The debt to equity ratio measures how much financing for the company’s operations is being funded by equity or debt. Barnes and Noble is financing its operating mostly on debt then stockholder’s equity which means they will have to be paying interest back annually and be scrutinized heavily if they cannot pay their interest. Analysis of Value Chain Activities Primary Activities The company’s primary activities are as follows: BookMaster, the Company’s proprietary inventory management database, has more than 13 million titles. It includes over 3.7 million active titles and provides each store with comprehensive title selections. By enhancing the Company’s existing merchandise replenishment systems, BookMaster allows the Company to achieve high in-stock positions and productivity at the store level through efficiencies in receiving, cashiering and returns processing. The Company also leverages its system investments through utilization of Barnes & Noble.com’s proprietary order management system, which enables customers to place orders at stores for any of the over one million titles in stock throughout the Company’s supply chain. The Company has a multi-channel e-commerce marketing strategy that deploys various merchandising programs and promotional activities to drive traffic to both its stores and website. At the center of this e-commerce program is the Company’s website, barnesandnoble.com. In this way, the website serves as both the Company’s direct-to-home delivery service and as an important broadcast channel and advertising medium for the Barnes & Noble brand. For example, the online store locator at barnesandnoble.com receives millions of customer visits each year providing store hours, directions, information about author events and other in-store activities. Similarly, in Barnes & Noble stores, NOOK® customers can access free Wi-Fi connectivity; enjoy the Read In Store™ feature to browse many complete eBooks for free, and the More In Store™ program, which offers free, exclusive content and special promotions. (Barnes & Noble, 2014). Support/Operating Activities The operating activities provide Barnes and Noble with its primary resources to support operations, growth initiatives, seasonal funding requirements and capital expenditures. Cash
  15. 15. 15 from operations is impacted by net income and changes in working capital. Net Income is impacted by sales volume, seasonal sales patterns, new product success and profit margins (10K). Historically, sales are higher during the 4Q of the fiscal year ending January, due to seasonality. In anticipation of the holiday season, inventory builds during the summer and fall months as working capital peaks (10K). Cash flows provided by (used in) operating activities were $320.0 million, $117.4 million and $(24.1) million during fiscal 2014, fiscal 2013 and fiscal 2012, respectively. The increase in cash flows from operating activities in fiscal 2014 was primarily attributable to lower inventory levels. Core Competencies According to the website, the core competencies are as follows: “Our four key competencies – putting the book in the customer’s hand, offering to order the book, offering Membership, and fast cashiering.” We have found that the actual core competencies that is most important to the company is their physical brick-and-mortar stores. Unlike Amazon, the company offers a relaxing setting to sit and enjoy your book. Strengths Weaknesses Established brand Discount Pricing B&N College Broad Product Portfolio Inconsistent Mission Statement Dependence of Suppliers Lacking Supporting Activities Strengths Established brand Barnes & Noble was established in 1873 as a small bookseller and has become a prominent and well-known name in the bookselling business ever since. Barnes & Noble offers
  16. 16. 16 an extensive selection of book and book-related products which can be purchased in the company’s numerous retail stores or through its eBook business. B&N has a retail presence in every state, with nearly 700 bookstores (Barnes and Noble Inc., 2012). Discount pricing to attract price sensitive customers Barnes & Noble enjoys a dominant position in the market and is a preferred retailer for several of its suppliers and publishers. The company has access to a large customer base which makes it easy to negotiate better prices from the publishers. Its bargaining power enables the company to adopt value pricing strategy. The company's stores employ an aggressive nationwide discount pricing strategy. Barnes & Noble offers 30% off on retail prices suggested by publishers for hardcover and paperback bestsellers and 40% off on select feature titles in departments such as children’s books and computer books. Additionally, customers are offered greater discounts and other benefits for products and services, as well as exclusive offers and promotions through e-mail or direct mail generally for an annual fee of $25. These members also get information about special promotions at the company's stores and at Barnes & Noble.com, and unlimited free express shipping on orders placed on Barnes & Noble.com. Besides these, Barnes & Noble.com also utilizes an 'everyday low pricing' model in order to provide a single, low price for each item on the site to members as well as non-members. By effectively passing on these benefits, Barnes & Noble is able to attract new customers and also encourages increase in average spending by the existing customers. Value pricing strategy is also a key competitive advantage for the company in a market where consumers are more price sensitive than ever before. B&N College Barnes & Noble College operates nearly 700 of the finest campus bookstores nationwide for such top academic institutions as Harvard, Yale, the Pennsylvania State University and many
  17. 17. 17 more. As of November 2014, 714 campus stores (DeLaMerced, 2015) represent approximately 25% of the United States Higher Education student base. Barnes & Noble College’s customer base can purchase various items from their campus stores, including textbooks and course- related materials, emblematic apparel and gifts, trade books, computer products, school and dorm supplies, convenience and café items. A significant number of textbooks are now available in multiple formats: new, used, rental and digital, resulting in improved choice and substantial student savings. Broad Product Portfolio The company leverages on its broad product portfolio to tap immense market potentials. The company offers a broad range of products including books such as hardcover and paperback consumer titles, mass market paperbacks such as mystery, romance, science fiction and other popular fiction, children’s books, bargain books, magazines, gift, cafe products and services, music and movies. Weaknesses Inconsistent Mission Statement The company has many conflicting issues in regards to their internal operations. A strong mission statement describes the company’s current business practices and defines the reason for the company’s existence. The mission statement makes is apparent to investors that B&N does not want to expand outside of America. The mission statement is also weakened because it contradicts itself. For instance, the first sentence says, “Our mission is to operate the best specialty retail business in America, regardless of the product we sell.” Then the third sentence says, “To say that our mission exists independent of the product we sell is to demean the
  18. 18. 18 importance and the distinction of being booksellers.” The mission statement is unclear to not only the investors but consumers, as well. Dependence on few suppliers A large proportion of the products sold by the company is sourced from few domestic and international suppliers. During FY2014, Barnes & Noble's five largest suppliers accounted for nearly 49% of the dollar value of merchandise purchased by it. Additionally, B&N College's five largest suppliers accounted for approximately 51% of its merchandise purchased in FY2014. Barnes & Noble does not have long-term arrangements with most of its suppliers. As a result, there is no guarantee that it will have key merchandise, content, components or services, particular payment terms or the extension of credit limits whenever required. This makes the company vulnerable in case its current suppliers stop selling or are not able to sell merchandise, content, components or services to it on acceptable terms. Change in the company's relationships with key suppliers can materially affect its sales and profits. Additionally, any significant change in the payment terms that Barnes & Noble has with its key suppliers can affect its financial condition and liquidity (Market Line Research, 2015). Lacking Supporting Activities Barnes and Noble used nearly a billion dollars to build their own e-reading devices, which were initially well-received. With this being said, B&N also tried to invest in tablet computers, which were not accepted well. In fact, the company has not invested any money into Research and Development since 2012. B&N is lacking in support activities, specifically financial control and technological development.
  19. 19. 19 External Analysis The macro environment that affects Barnes and Noble includes four forces. These forces are typically uncontrolled by the organization. In order to remain competitive in the market, it is necessary to understand the book industry as a whole. External Effects on Industry Technology The company may benefit by the positive tablet shipment outlook. According to the Consumer Electronics Association (CEA), unit sales of tablets in the US are expected to grow from 77.4 million in 2013 to 89.3 million in 2014. In 2014, the total revenue from tablet shipments is expected to reach over US$27 billion, reflecting an increase of 3% over previous year. Apple dominates the tablet market with its iPad range of tablets that include the new iPad Air and iPad mini with Retina display. Although the competition is likely to increase for iPad with the introduction of Samsung Galaxy and BlackBerry PlayBook, the company is expected to maintain its share in this high growth market by launching new versions of iPad tablets (Global Data Research, 2014). Market Share The book business is highly competitive in every channel in which Barnes & Noble operates. B&N Retail stores compete primarily on the quality of the shopping and store experience and the price and availability of products. The importance of price varies depending on the competitor, with some of Barnes & Noble’s competitors engaging in significant discounting and other promotional activities. B&N Retail competes with other bookstores, including Books-A- Million. It also faces competition from many online businesses, notably Amazon.com and Apple.
  20. 20. 20 Increases in consumer spending via the Internet may significantly affect its ability to generate sales in B&N Retail stores. B&N Retail also faces competition from mass merchandisers, such as Costco, Target and Wal-Mart. Some of the Company’s competitors have greater financial and other resources and different business strategies than B&N Retail does. B&N Retail stores also compete with specialty retail stores that offer books in particular subject areas, independent store operators, variety discounters, drug stores, warehouse clubs, mail-order clubs and other retailers offering books, music, toys, games, gifts and other products in its market segments (SEC Filing, 2014). Barnes & Noble, Inc. - Key Competitors Barnes & Noble, Inc., Key Competitors Name Headquarters Revenue (US$ m) Amazon.com, Inc. United States 74,452 Apple Inc. United States 182,795 Books-A-Million, Inc. United States 470 Costco Wholesale Corporation United States 112,640 Target Corporation United States 72,596 Wal-Mart Stores, Inc. United States 476,294 Source: Annual Report, Company Website, Primary and Secondary Research GlobalData (Global Data Research, 2014) Economic Forces The Company’s businesses are seasonal. For the Company’s businesses other than the College business, sales are generally highest in the third fiscal quarter and lowest in the second and fourth fiscal quarters. For fiscal 2014, 33% of sales and 74% of operating income of the Retail business were generated in its third fiscal quarter. Operating results in the Company’s businesses other than the College business depend significantly upon the holiday selling season in the third fiscal quarter. The College business is also seasonal, with sales generally highest in
  21. 21. 21 the second and third fiscal quarters, when college students generally purchase textbooks for the upcoming semesters and lowest in the first and fourth fiscal quarters. Less than satisfactory net sales for any fiscal quarter could have a material adverse effect on the Company’s financial condition or operating results for the year and may not be sufficient to cover any losses which may be incurred in the other fiscal quarters of the year (SEC Filing, 2014). The Company’s businesses have been adversely impacted by the economic downturn in the United States over the last several years which, among other things, has decreased discretionary consumer spending. A deterioration of the current economic environment could have a material adverse effect on the Company’s financial condition and operating results, as well as the Company’s ability to fund its growth or its strategic business initiatives. The retail and digital sales are primarily dependent upon discretionary consumer spending, which is affected by the overall economic environment, consumer confidence and other factors beyond its control. In addition, the Retail businesses and the Digital business’s sales are dependent in part on the strength of new release products which are controlled by publishers and other suppliers. The economic downturn over the last several years has led to declines in consumer traffic and spending patterns, adversely impacting the Retail businesses and the Digital business’s financial performance. The effect of the economic downturn on other retailers in shopping malls in which the Retail business locations are located also may adversely affect the Retail business. For example, if the downturn leads to one or more vacancies in a shopping mall, traffic to its store in the mall may decrease.
  22. 22. 22 The College business’s sales are also affected by the overall economic environment, including as a result of reductions in funding levels at colleges and universities, although historically the effect has been less significant than in the Retail business’ stores. The College business’s sales are also impacted by changes in enrollments at colleges and universities. Students also may spend less on textbooks and other general merchandise in a difficult economic environment. The College business is also dependent on, among other things, college and university funding, government grants and funding, which may be negatively impacted in an economic downturn. In particular, the Company has announced that it is in discussions with strategic partners including publishers, retailers and technology companies in international markets that may lead to expansion of the NOOK business abroad. There can be no assurances that the Company will actually be successful in reaching agreements with these partners. Moreover, the terms of any agreements that are reached may not be advantageous to the Company. The NOOK® device may require technological changes to comply with applicable foreign laws. It also may not be accepted in a particular marketplace where other companies may have already entered with products that have achieved some customer acceptance. Political The Company is subject to general business regulations and laws relating to all aspects of its business, including regulations and laws relating to the Internet, online commerce, digital content and products as well as its other lines of business (including governmental investigations and litigation relating to the agency pricing model for digital content distribution). Existing and future laws and regulations and their application and/or enforcement may impede the growth of the Internet, digital content distribution or other online services and impact digital content
  23. 23. 23 pricing, including requiring modifications or elimination of related pricing models including the agency pricing model. These regulations and laws may cover taxation, privacy, data protection, pricing, competition and/or antitrust, content, copyrights, distribution, college distribution, mobile communications, electronic contracts and other communications, consumer protection, the provision of online payment services, unencumbered Internet access to the Company’s services, the design and operation of websites, the characteristics and quality of products and services and employee benefits (including the costs associated with complying with the Patient Protection and Affordable Care Act) (SEC Filing, 2014). Unfavorable regulatory and legal developments, including among other things the July 2013 U.S. federal court ruling that Apple Inc. violated antitrust laws by colluding to raise the price of digital books with certain U.S. publishers and the settlement between the U.S. Department of Justice and certain U.S. publishers for allegedly colluding to raise the price of digital books, could diminish the demand for the Company’s products and services, increase its cost of doing business, decrease its margins and materially adversely impact its results of operations or financial operations (SEC Filing, 2014). Litigation The company is subject to a variety of litigations and regulatory investigation and actions in connection with the company’s operations. Lawsuits, including regulatory actions, may seek recovery of large, indeterminate amounts or otherwise limit its operations, and their existence and magnitude may remain unknown for substantial periods of time. Lawsuits filed again Barnes and Noble continue to raise questions about the company’s executives practice. Demographic/Sociocultural Forces
  24. 24. 24 People from the older demographic represent the biggest segment for the retail book industry; however, as this generation becomes inactive, book retailers will find it troublesome to appeal to the younger demographic. For example, people under the ages of 25 represent only slightly less 6 percent of the overall market of the book retail industry. Furthermore, as younger and adult customers from the technological age increase their spending power, they are more likely to prefer e-books to physical books. The following table represents those who spend above the national average of books Customer Segment Percent ABOVE National Average Spending on Books Householdersaged45-64 12% to 24% Married coupleswithnochildrenathome 23% Married coupleswith school-agedorolderchildrenat home 33% to 40% Non-Hispanicwhites 19% Householdsinthe West 41% College Graduates(Bachelor's) 60% Master's, Professional orDoctoral 156% (BookStore,2012) Opportunities Threats  Growing eBooks Market  Specialty Retail Business  BN College  Litigation  Digital Space  Fast Changing Trends/Changing Consumer Preferences  Discount Pricing Offered Elsewhere  Growing problem of digital piracy Opportunities Growing eBooks market
  25. 25. 25 Barnes & Noble has aggressively forayed into the eBook market and combined with NOOK, it has established a dominant position. The company entered the eBooks market in 2009 with the acquisition of Fictionwise, a leader in the eBook marketplace. Additionally, through eBookstore, Barnes & Noble offers more than three million eBooks, newspapers and magazines for sale. Though eBooks represent a fraction of overall publishing sales, the share is growing. According to the industry estimates, eBooks represented nearly 22% of all trade books sold in 2013, up from nearly 20% in 2012. The company will benefit from rising eBook sales by leveraging on its established presence in the platform and its large customer base (Market Line Research, 2015). Specialty Retail Business Barnes operates in a global specialty retail business domains and its business depends principally on the customer preferences, changing consumer demands and the changing trends. The company has to adapt quickly to these changes to increase or maintain its business in the competitive specialty retail industry. The consumers’ purchasing decisions are highly subjective and could be influenced by various factors, such as brand image, marketing programs and product design. The company should anticipate and respond to these changing consumer preferences in a time based manner. BN College B&N College provides direct access to a large and well-educated demographic group, enabling the Company to build relationships with students throughout their college years and beyond. The Company also expects to be the beneficiary of market consolidation as more and more schools outsource their bookstore management. The Company is in a unique market position to benefit from this trend given its full suite of services: bookstore management,
  26. 26. 26 textbook rental and digital delivery. The Company is making further investments in its college business. The Company believes higher education provides a long-term growth opportunity. Threats Litigation In 2014, Barnes and Noble was involved in a class action lawsuit. This lawsuit included the falsifying and manipulation of financial statements. The lawsuit alleges that “Barnes and Noble misrepresented and/or failed to disclose that Nook e-reader sales had drastically declined. Nook manufacturing ceased to continue, and inventory relating to the Nook was overstated by $133 million (Sgrignoli, 2014).” Ryan and Maniskas, a law firm involved in the class acition suit listed eight causes of action which include: 1. Barnes & Noble's Nook e-book reader sales had dramatically declined; 2. B&N Company would shutter its Nook manufacturing operations altogether 3. The carrying value of the Nook assets were impaired by millions of dollars 4. The carrying value of the Nook inventory was overstated by $133 million 5. The Company was expecting fiscal 2014 retail losses in the high single digits 6. Barnes & Noble had over-accrued certain accounts receivables 7. Barnes & Noble was unable to provide timely audited financial results for fiscal 2013 8. The Company might be forced to restate its previously reported financial results. These litigations may result in significant penalties in multiple jurisdictions. The defense of these lawsuits would eventually divert the long term focus and also involve considerable expenses. Barnes will also be required to pay damages and is subject to equitable remedies that adversely affect its financial performance and results of operations. Digital Space That being the case with the retail stores, the most significant competitive threat is in the digital space. As several companies are aggressively competing for market share in this high growth space, the price wars are intensifying. The Kindle's (Amazon's eReader) broad
  27. 27. 27 distribution could overshadow Barnes & Noble's NOOK eReader, stunting the company's digital growth initiative. Furthermore, Amazon, Barnes & Noble and Sony compete to sell eBook reader hardware among several other players. As the company struggles for better position in the eBook industry, it cut prices of eReaders significantly as competition stepped up. For instance, in 2013, Barnes & Noble reduced the price of its NOOK Simple Touch with GlowLight to $99, a $20 savings from its previous $119 price tag, and a $400 less than its original debut price in early 2012. The company cut the prices of NOOK Simple Touch with GlowLight in order to compete with Amazon's Kindle Paperwhite, a similar eReader that was launched for $119 in 2012. Furthermore, in 2014, the company announced new low prices on NOOK devices. Barnes & Noble offered Samsung Galaxy Tab 4 NOOK at a low price of $149.99 for the 7-inch tablet (after a $50 instant rebate) and $249.99 for the 10-inch tablet (after a $100 instant rebate). During the same time, the company also announced a permanent new low price of just $99 for its NOOK GlowLight eReader, which was earlier priced at $119. The pricing moves in 2014 are part of an effort by Barnes & Noble to boost its unit volume due to tough competition from retailers such as Amazon. Fast Changing Trends/Changing Consumer Preference The Company has entered parts of the online and digital markets in which it has limited experience and may in the future expand into additional areas. The offering of digital content may present new and difficult challenges. Gross margin for digital content and products may be lower than for the Company’s traditional product lines. The gross margin for the Company’s online sales is generally lower than for sales in its retail stores. Although the Company has entered into the online and digital spaces, it may not be able to compete effectively in those spaces and any investments made in those spaces may not be successful. The Company also
  28. 28. 28 faces competition from companies engaged in the business of selling books, music and movies via electronic means, including the downloading of books, music and movie content. For example, historically the Retail business offered a selection of music products in its stores, but has dramatically decreased such selection because of the increased competition from the download of digital music. The College business is experiencing growing competition from alternative media and alternative sources of textbooks and course-related materials, such as websites that sell textbooks, eBooks, digital content and other merchandise directly to students; online resources; publishers selling directly to students; print-on-demand textbooks; CD-ROMs; textbook rental companies; and student-to-student transactions over the Internet. In addition, the College business has significantly increased its textbook rentals, offering students a lower cost alternative to purchasing textbooks, which could be subject to inventory risks if books are not resold or re- rented. Sales of physical textbooks by the College business may also be adversely impacted by increased usage of digital content and eBooks, including textbooks in digital form. These challenges may negatively affect the Company’s results of operations. Although the company has a consistent focus on innovation and creativity to stay up-to-date of emerging trends affecting the company's business, however, any failure to identify and respond to change in consumer preference and the rapidly changing trends could adversely affect consumer acceptance of company’s products and brands in turn affecting its future business growth. Discount Pricing Offered Elsewhere Barnes operates in a highly competitive domestic and international educational tools and services industry and faces substantial competition from various regional and local players. The consumers have various options for purchasing traditional and digital textbooks, course materials,
  29. 29. 29 e-commerce and software. Key competitive factors in the industry include price awareness among consumers, product quality, customer service, and quality, breadth of product selection, and availability of products. B&N Retail faces competition from bookstores including Books-A- Million; mass merchandisers, including Costco, Target and Wal-Mart. B&N Retail also competes with specialty retail stores which offer books, independent store operators, drug stores, variety discounters, mail-order clubs, warehouse clubs, and other retailers that provide books, toys, music, gifts, games and others. The company also faces competition from online operators including, Amazon.com and Apple. Moreover, it faces competition from educational institutions. Its music and movie business faces competition from discounters, mass merchants and electronic distributors. As a result, different retailers are now competing both within a specific industry segment and across industry segments. Therefore, to succeed in such an industry, it becomes very important for a retailer to distinguish its offerings through a clear and unique value proposition. Growing problem of digital piracy Digital piracy has been growing at a rapid rate in the recent times. Numerous books and journals are offered for sale by fake sites, outside the US, without the consent of the owners of the content. These fake sites generate income from subscriptions to their pirated works and through sale of advertising space on their sites. The online book piracy has been growing rapidly. According to a survey conducted by an industry source, more than one-third of the college students in the US illegally downloaded course materials from unauthorized websites during the spring 2013. Additionally, several students also photocopied or scanned chapters from other student textbooks. In the US, the e-book piracy rate is about 12% (Market Line Research, 2015).
  30. 30. 30 Porter’s Five Forces Degree of Rivalry Concentration and balance of competitors Industry Growth Fixed/Storage Cost Exit Barriers Threat of Entry Low Barriers Bargaining Power Of Buyers Changing Suppliers is not costly Alernative suppliers are plentigul The customer industry has large firms Threat of Substitution Capital Requirements Distribution Channels Economies of Scale Product Differentiation Bargaining Power of Suppliers Limited Suppliers Supplier are credible threat to integrate forward into industry Suppliers goods are critical to customer's marketplace success
  31. 31. 31 TOWS MATRIX TOWS Strategy SO1- Established Brand and Strategic Alliances Cultivate a partnership with Google and use Google Shop SO2- Established Brand and Promising Tablet Market Develop a successful e-reader to promote to college students SO3- Established Brand and Take Advantage of Internet Sales Innovate on the B&N App SO4- Largest Chain of Brick and Mortar Bookstores in the United States and Take Advantage of Internet Sales Develop a marketing campaign to advertise B&N SO5- Largest Chain of Brick and Mortar Bookstores in the United States and Strategic Alliances Share our warehouses with Google or other corporations WO1- Lack of Investment in Research and Development and Promising Tablet Market Increase R&D Expense towards technology WO2- Mission Statement is Inconsistent with Actions of Management and Strategic Alliances Improve corporate governance by developing a process system WO3- Digital Reading is on the Rise and Promising Tablet Market Partner with Android to preload the B&N app on phones ST1- Established Brand and Take Advantage of Internet Sales Use the B&N brand name to develop online sales WT1- Currently Operating at a Net Loss and Highly Competitive Industry/White Collar Society Close down unprofitable locations
  32. 32. 32 WT2- Mission Statement is Inconsistent with Actions of Management and White Collar Society Reorganize senior management Criteria to screen and test our strategy alternatives: 1) Fit with mission, vision, and objectives 5) Shelter from environmental changes 2) Consistency with realities of external audit 6) Potential rewards 3) Feasibility given firm’s internal audit 7) Lower risk 4) Ability to build upon competitive advantage Strategy Screening Table 1 2 3 4 5 6 7 Total SO1 5 5 4 5 5 5 4 33 SO2 4 3 5 5 4 5 4 30 SO3 3 3 2 2 2 3 2 17 SO4 3 2 3 1 2 3 2 16 SO5 2 3 3 4 4 4 3 23 WO1 3 4 4 2 2 4 2 21 WO2 4 3 3 4 4 4 4 26 WO3 3 3 2 5 3 4 2 22 ST1 3 3 2 3 3 2 3 19 WT1 1 2 2 2 3 2 2 14 WT2 4 3 3 2 3 3 2 20 ScreeningTable Ranking Key 1 = verylow,2 = low,3 = medium,4 = high,5 = veryhigh
  33. 33. 33 Linking Table Strategic Issues Strategies Long-Term Objectives Remaining competitive with Amazon going forward, since they are like an online Walmart SO1- Cultivate a partnership with Google and use Google Shop Improve market share and profitability Getting colleges to use distribute e-readers the way would like them to SO2- Develop a successful e- reader to promote to college students Increased brand recognition to our target market for B&N College GE Matrix NOOK B&N College B&N Retail IndustryAttractiveness Competitive Position 18
  34. 34. 34 Criteria of Industry Attractiveness Criteria for Competitive Position - 1-4 “Low” - 1-6 “Poor” - 4-8 “Medium” - 6-12 “Medium - 8-12 “High” - 12-18 “Good” Strategic Issues to be addressed 1. First, we need to rebuild our corporate governance issues; this includes addressing the mission statement which needs to be remodeled and also making necessary changes in B&N’s top managerial positions. 2. Second, Barnes & Noble lacks a successful e-commerce program; we suggest revamping the website to better serve the needs of the customers, including customer recommendations and an enhanced loyalty program. 3. The third strategy would be to partner with Android Operating Systems in creating an application for mobile phones that are preloaded onto the phone. This application will allow customers to read books on the go, without having to carry a tablet or e-reading device. 4. The fourth strategy would be to offer the first two to three chapters of a book online until the book is delivered to the client. 5. The next strategy would be to implement a universal code and policy to ensure that all Barnes & Noble stores are functioning as a single cohesive unit. 6. Another alternative strategy to consider would be offering a “GOOGLE Stop” in selected stores. This designated area would serve people to use the services that Google currently offers and can place orders for items.
  35. 35. 35 7. An additional possible strategy to consider would to be sharing our warehouses with Google to reduce our rent expenses. We could offer them to use our current facilities at a charge of 25%. 8. Our next strategy would be to offer “real estate” on our website. This would allow outside companies to promote their products on our website, in return for “real estate” on their website. 9. Our final two strategies would be to partner with Google in order to gain advantage of all of their resources, and to use Google’s connections to have an e-reading device created for Barnes & Noble. Barnes & Noble is dealing with several issues at the current moment. Some of them are larger than others. The first major issue is that there is a decrease in profit margins due to an increase in competition. This means that B&N is severely losing profits due to stiff competition from companies such as Amazon, or Chegg. Amazon is by far B&N’s biggest competitor. Amazon has a tight stranglehold over the book industry. I’ve learned through my work at QVC, how Amazon does this. Amazon does this by lowering their profit margin on their products. For Instance, B&N may have a profit margin of twelve percent on their products, whereas Amazon has a profit margin of six percent. This allows them to drastically lower their prices on their products, or books specifically. B&N is also dealing with spending their funds on brick and mortar outlets. This means that B&N is allocating its resources on individual stores instead of the company as a whole. This plan is not effective at all, and is extremely detrimental to the company. Their funds are draining extremely fast, and they will not be able to stay afloat for long. Another related issue is that there is a large decline in physical book sales. A large majority of people are transitioning to e-books
  36. 36. 36 instead of physical books. The reason is that they are cheaper, and much easier to acquire. If you need a book you can immediately download it to your computer or tablet for a very inexpensive cost. Barnes & Noble is the last brick and mortar book store. Another related issue is that B&N is lacking support activities. They lost financial control and technology development. B&N lost nearly one billion dollars in e-reading devices, which are completely irrelevant now. This was a major loss to the company. It’s extremely hard to bounce back from a billion dollar loss. They also have not allocated any funding into research and development for the past four years. This means that they are not staying innovative, or are creating new products for their company. Research and development is a huge part of all major companies. It is the glue that holds the company together. If a company is not innovative, they will not survive. As B&N implement the new strategy that we recommended, they will have issues with getting different universities to use their products the way they intended them to. In order to keep selling to the universities, B&N will have to have as much control as possible with the usage of the new system offered to the schools. Another issue will be to remain competitive with the Nexus tablets, since they are going slightly towards that industry. Nexus may want to make similar products. The biggest related issue is to remain competitive with Amazon, since they are B&N’s biggest competitor. Amazon is like the Walmart of the internet. B&N will need to compete by offering multi-products to remain competitive. Proposed Objectives In order to address the issues, objectives were created as follows:
  37. 37. 37  Turn a profit within three years, by increasing sales by 10% year over the next three years.  Within the next three years, B&N wants to advance into 10% more universities.  Lower debt by 10% in the next three years Strategic Choices and Recommendations Our team has created a plan with specific strategies that are essential for Barnes & Noble to be successful. All objectives can be reached if the proper planning protocols are created and followed. We’ve created multiple sound strategies that can be implemented to aid this vanishing company. One is to partner with Google to expand the digital market. Partnership could be a game changer versus Amazon. This will provide quick, cheap delivery services through Google Shopping. The next strategy is to partner with a Google company to develop a new type of e-reader. It must be an e-reader that works correctly, and is competitive with other similar devices. We can also outsource manufacturing which will reduce our expenses, as well as our risk. This strategy will take a large amount of investment. This exact figure will be calculated for the final draft of the paper. Much research must be done before we feel comfortable giving a figure. We do not want to give an unrealistic figure that cannot be reached. This number can range from a very small percentage to a very large percentage of the company’s capital. Once this number has been calculated, we will incorporate it into the final report. The next strategy would be to rebuild our corporate governance issues; this includes addressing the mission statement which needs to be remodeled and also making necessary changes in B&N’s top managerial positions.
  38. 38. 38 Barnes & Noble lacks a successful e-commerce program; we suggest revamping the website to better serve the needs of the customers, including customer recommendations and an enhanced loyalty program. The next strategy would be partnering with Android Operating Systems in creating an application for mobile phones that are preloaded onto the phone. This application will allow customers to read books on the go, without having to carry a tablet or e-reading device. Another strategy would be to offer the first two to three chapters of a book online until the book is delivered to the client. A universal code and policy may be constructed to ensure that all B&N Stores and B&N College store are abiding the same rules and regulations. Another alternative strategy to consider would be offering a “GOOGLE Stop” in selected stores. This designated area would serve people to use the services that Google currently offers and can place orders for items. Additional possible strategy to consider would to be sharing our warehouses with Google to reduce our rent expenses. We could offer them to use our current facilities at a charge of 25%. Our final strategy would be to offer “real estate” on our website. This would allow outside companies to promote their products on our website, in return for “real estate” on their website. Strategic Choice The following two strategies, which are identified in our external analysis, have been accepted and implemented in order to attain to and complete our long term objectives:
  39. 39. 39 ● Develop a strategic alliance with Google in order to increase Barnes & Noble’s digital presence as well as its sales through Google Shop. Through the strategic alliance with Google, develop a new and improved tablet using the company that produces their digital products: Nexus. Following this, there will be direct marketing and implementation of these new tablets into Barnes & Noble’s college campuses so that students can use them for their schooling. (G) Strategy Implementation
  40. 40. 40 In order to develop a successful implementation of the recommended strategies Barnes & Noble will address financial, internal, future, and customer perspectives, evaluated using a balanced scorecard. Promotional Strategy 1 In order to increase sales of Barnes & Noble’s products outside of brick and mortar locations, the strategic alliance with Google and use of Google Shop will provide a more convenient method of shopping for customers. They will also be able to receive their products quickly and have access to the same large database of products our brick and mortar locations offer, all while not having to leave their homes to go to one of our stores. Strategy 1 Implementation: Direct sales of B&N products via Google Shop & increased digital market presence Financial Increase digital presence andsales of Barnes & Noble products through a strategic alliance with Google Internal Ensure sales associates are trainedwell andmaintain a strongonline salesforceas well as great customer care -Train all B&N sales/marketing associates on the properuse and maintenance ofnewly implementedtechnology Future -Increase overall sales by maintaininga successful online market for customers Customer -Increase awareness of Barnes & Noble's newandimproved digital presence andonline products offeredthrough Google Shop -Create a moreconvenient shoppingexperience as well as fast shippingfor customers.
  41. 41. 41 The goal is not only to increase sales through Google Shop, but Barnes & Noble’s overall digital presence in general. They will still maintain the exclusivity of having brick and mortar locations but also gain a share of the online market to keep up with today’s technology. Customers will have direct access to our products through Google as well as the ability easily find what they are specifically looking for. Promotional Strategy 2 Development of a new and advanced tablet with the Nexus Company in order to gain a successful presence in the digital market. By creating this new tablet Barnes & Noble will Strategy Implementation 2 Develop a new tablet with Nexus & implement it in B&N's college markets Financial -Increase digital product sales -Heavily market the newdigital product and gain a large share of that particular market Internal -Train sales associates tobe able to successfully market the new tablets andmake customers aware of their abilities and potential use Future -Have college students using our newtablets for schoolingthrough the direct marketingto the universities themselves Customer -Create customerawareness of the newandimprovedtablets and directly market themtothe largest college campuses B&N has stores in
  42. 42. 42 increase customer awareness about its specific capabilities. It will then be directly marketed to Barnes & Noble’s college campuses, implemented into their schooling, and integrated with their course books and assignments so students can successfully use them for their needs. Due to Barnes & Noble’s large and profitable presence on hundreds of college campuses across the country, there is very large potential for this new tablet. Evaluation and Control After evaluating Barnes and Nobles issue and objectives and formulating strategies, we develop two ways to improve the company’s financial position. Barnes and Noble will develop a strategic alliance with Google to take advantage of Google Shop where Barnes and Noble can sell all of its products to consumers in a marketplace more suited to the average individual. This will also increase sales because of the innovation of Google for fast shipping to compete with Amazon. Google also has its own technology company, Nexus, which will provide us the resources for our next strategy. Barnes and Noble will develop a tablet with the help of Nexus, which is owned by Google, to cater to college students. While doing a test run at Penn State University with almost 100,000 students we could expect sales of about $7.5 million from one college. Barnes and Noble has relations with 700 colleges now and with the estimate of about 10,000 students at every college, their gross sales would be around $525 million. Conclusion In conclusion, we have created several strategies that we felt were viable to save Barnes & Noble. After careful deliberation, we’ve chosen the two strategies that we felt were best. The strategies chosen have been carefully analyzed to ensure they were the two best options. To
  43. 43. 43 conclude this, we’ve created a TOWS matrix, strategy screening table, strategy linking table, and GE matrix. Porter’s Five Forces also has helped us to reach this conclusion. Our team has also identified all strategic issues, such as how Barnes & Noble is funding stores operating independently, operating at a net loss, and strongly lacking support activities. They have not invested any resources into research and development within the past 4 years. The first strategy is to have Barnes & Noble create a strategic alliance with Google, and the second is to use Google’s connections to have a new e-reading device created. The amount that must be invested is $250 million, and the profit will be $1 billion within 3 years. The benefits of these two strategies outweigh the detriments. Our team strongly recommends that Barnes & Noble adopt these two strategies. We are certain that they will make Barnes & Noble thrive within the industry once again. Our paper included a fully detailed internal analysis with background information, Barnes & Noble’s current mission statement, governance policies, and financials. Our team revised the current mission statement, the current governance policies, and completed a thorough analysis of all pertinent ratios. This financial analysis includes a vertical analysis, horizontal analysis, and shows a forecasted income statement. We’ve also done a complete external analysis to identify all outside factors. This has identified that Barnes & Noble is heavily affected by technology due to the e-reading device, and is currently within a highly competitive industry. Also, Barnes & Noble is dependent on the overall economic environment and consumer buying patterns. We’ve also identified the demographic and sociocultural forces.
  44. 44. 44 WorksCited Barnes& Noble.(2014). AnnualReport. Retrieved2015, fromBarnes& Noble Inc: http://www.barnesandnobleinc.com/documents/bn_annual_report_2014.pdf Barnesand Noble.(2011). Our Mission.RetrievedMarch7, 2015, fromBarnesand Noble Inc: http://beta.barnesandnobleinc.com/our_company/mission/our_mission.html Barnesand Noble Inc.(2012). Our Company.RetrievedfromBarnesandNoble Inc: http://beta.barnesandnobleinc.com/our_company/did_you_know/did_you_know.html BookStore.(2012). RetrievedfromSmall BusinessResearchReports:http://www.sbdcnet.org/small- business-research-reports/bookstore-2012 CorporateGovernanceGuideline.(2011, March). RetrievedfromBarnesAndNobleBookSeller: http://www.barnesandnobleinc.com/for_investors/governance/Corporate_Governance_Guideli nes/Corporate_Governance_Guidelines.html DeLaMerced,M. J. (2015, Feburary27). Barnesand Nobleto Spin off CollegeBookstoreUnit.Retrieved fromThe NewYorkTime : http://www.nytimes.com/2015/02/27/business/dealbook/barnes- noble-to-spin-off-college-bookstores-unit.html?_r=0 Global Data Research.(2014). Barnes& Noble,Inc.(BKS). RetrievedApril2015, fromGlobal Data: www.globalcompanyintelligence.com Market Line Research.(2015). Barnesand NobleInc. RetrievedfromMarketLine Research: http://ezaccess.libraries.psu.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true &db=buh&AN=101526359&site=ehost-live&scope=site SEC Filing. (2014, June 27). RetrievedfromBarnesAndNoble Inc: http://forinvestors.barnesandnobleinc.com/secfiling.cfm?filingID=1193125-14-253539 Sgrignoli,C.(2014, March 19). AnotherLawsuitHighlightsTroub;e.RetrievedfromThe MotelyFool: http://www.fool.com/investing/general/2014/03/19/another-lawsuit-highlights-trouble.aspx
  45. 45. 45 Appendix Horizontal Analysis (In Billions) 2012 2013 2014 Change ‘12 to ‘13 Change ‘13 to ‘14 Sales 7.13 6.84 6.38 (0.29) (0.46) COGS 5.44 5.38 4.74 (0.06) (0.64) Gross Profit 1.68 1.46 1.64 (0.22) 0.18 R&D Expense 0 0 0 0 0 Operating Income (.01175) (.02447) (.03399) (.01272) (.00952) Net Income (.06484) (.15781) (.04727) (.09297) (.11054) Vertical Analysis for 2014 (In Billions) Barnes and Noble Amazon Industry Sales 6.38 88.99 100.0% Cost of Goods Sold 4.74 62.75 68.0% Gross Profit 1.64 26.24 32.0% Operating Income (.03399) .0178 1.8% Net Income (.04727) (.0241) 1.0%
  46. 46. 46 Common Size for 2014 Barnes and Noble Amazon Industry Sales 100.0% 100.0% 100.0% Cost of Goods Sold 74.3% 70.5% 68.0% Gross Profit 25.7% 29.5% 32.0% Operating Income 0.0% 0.2% 1.8% Net Income 0.0% -0.3% 1.0% Financial Ratios B&N Amazon Industry Current Ratio 1.12 1.19 1.15 Debt-to-Equity Ratio 2.63 1.89 1.85 Times Interest Earned Ratio -0.33 -0.69 -1.14 Total Assets Turnover 1.89 1.83 1.80 Accounts Receivable Turnover 41.95 45.79 44.32 Return on Sales Ratio -0.01 -0.02 -0.01
  47. 47. 47 Google Partnership Pro Forma Income Statement In Thousands YEAR 2015 2016 2017 Sales 9,295,000 9,480,900 9,670,518 LESS: Cost OfGoods Sold 6,906,185 7,044,309 7,185,195 Gross Margin 2,388,815 2,436,591 2,485,323 LESS: Operating Expenses Operating Expenses 1,394,250 1,422,135 1,450,577 Corporate SG&A 139,425 142,214 145,058 Depreciation 357,500 357,500 357,500 Other 65,000 65,000 65,000 Total Operating Expenses 1,956,175 1,986,849 2,018,135 Operating Income Before Tax 432,640 449,743 467,188 Interest Expense 136,500 136,500 136,500 Net Income Before Tax 296,140 313,243 330,688 LESS: Tax 118,456 125,297 132,275 NET INCOME 177,684 187,946 198,413
  48. 48. 48 Nexus Tablets in Colleges Pro Forma Income Statement In Thousands YEAR 2015 2016 2017 Sales 7,605,000 7,757,100 7,912,242 LESS: Cost Of Goods Sold 5,650,515 5,763,525 5,878,796 Gross Margin 1,954,485 1,993,575 2,033,446 LESS: Operating Expenses Operating Expenses 1,140,750 1,163,565 1,186,836 Corporate SG&A 114,075 116,357 118,684 Depreciation 357,500 357,500 357,500 Other 65,000 65,000 65,000 Total Operating Expenses 1,677,325 1,702,422 1,728,020 Operating Income Before Tax 277,160 291,153 305,426 Interest Expense 136,500 136,500 136,500 Net Income Before Tax 140,660 154,653 168,926 LESS: Tax 56,264 61,861 67,571 Net Income 84,396 92,792 101,356
  49. 49. 49 Forecasted Income Statement Pro Forma Income Statement In Thousands YEAR 2015 2016 2017 Sales 16,900,000 17,238,000 17,582,760 LESS: Cost Of Goods Sold 12,556,700 12,807,834 13,063,991 Gross Margin 4,343,300 4,430,166 4,518,769 LESS: Operating Expenses Operating Expenses 2,535,000 2,585,700 2,637,414 Corporate SG&A 253,500 258,570 263,741 Depreciation 715,000 715,000 715,000 Other 130,000 130,000 130,000 Total Operating Expenses 3,633,500 3,689,270 3,746,155 Operating Income Before Tax 709,800 740,896 772,614 Interest Expense 273,000 273,000 273,000 Net Income Before Tax 436,800 467,896 499,614 LESS: Tax 174,720 187,158 199,846 Net Income 262,080 280,738 299,768
  50. 50. 50 Balance Sheet 2012 2013 2014 Assets: Cash 54.13M 160.47M 340.17M Accounts Receivable 169.95M 149.37M 143.98M Inventory 1.56B 1.41B 1.23B Current Assets 2.01B 2.05B 1.98B PP&E 622.66M 584.91M 490.71M Accumulated Depreciation 2.36B 2.53B 2.67B Intangible Assets 1.08B 1.04B 1.02B Other Assets 61.06M 57.07M 33.64M Total Assets 3.77B 3.73B 3.54B Liabilities & Equity: Short Term Debt 0 0 127.25M Accounts Payable 949.01M 805.19M 735.11M Other Current Liabilities 755.43M 785.67M 910.28M Total Current Liabilities 1.8B 1.72B 1.72B Long Term Debt 474.2M 256.89M 140.71M Provisions for Risks 0 54.07M 51.4M Deferred Taxes 242.75M 231.22M 211.93M Other Liabilities 216.5M 185.99M 174.88M Total Liabilities 2.73B 2.44B 2.3B Redeemable Preferred Stock 192.27M 193.54M 578.19M Common Equity 852.27M 713.74M 658.7M Total Shareholder's Equity 1.04B 907.28M 1.24B Accumulated Minority Interest 0 381.63M 0 Total Equity 1.04B 1.29B 1.24B Total Liabilities & Equity 3.77B 3.73B 3.54B
  51. 51. 51 Income Statement 2012 2013 2014 Sales 7.13B 6.84B 6.38B Cost of Goods Sold 5.44B 5.38B 4.74B Gross Profit 1.68B 1.46B 1.64B SG&A Expense 1.73B 1.65B 1.57B Unusual Expense 11.75M 24.47M 33.99M Operating Income (11.75M) (24.47M) (33.99M) Non-Operating Interest Income 0 0 190K Interest Expense 35.3M 35.35M 29.7M Pretax Income (89.91M) (255.35M) 4.69M Consolidated Net Income (64.84M) (157.81M) (47.24M) Net Income (64.84M) (157.81M) (47.27M) Statement of Cash Flow 2012 2013 2014 Operating Activities (24.11M) 117.39M 319.96M Investing Activities (173.41M) (175.68M) (128.5M) Financing Activities 192.22M 164.63M (11.76M) Free Cash Flow (187.66M) (48.44M) 184.98M)

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