Strategic Analysis on Barnes and Noble

THE PENNSYLVANIA STATE UNIVERSITY
BA 422W Team One
Kevin Barney, Charles Canessa, Adrian Clarke, Nicole Cosenza, Matthew Handwerk
4/28/2015

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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
 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
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
● 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
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
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
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
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
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
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
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
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
Nexus Tablets in Colleges
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
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
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
Forecasted 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
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
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
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
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)

Strategic Analysis on Barnes and Noble

More Related Content

What's hot

Similar to Strategic Analysis on Barnes and Noble

Strategic Analysis on Barnes and Noble