4:41 p.m. | Updated For Barnes & Noble, the digital future isn’t what it used to be.
Eight months after affirming its commitment to build its business through its Nook division, Barnes & Noble on Tuesday announced holiday sales so disappointing that it raised questions about the company’s ability to pull off the transformation from its traditional retail format.
Retail sales from the company’s bookstores and its Web site, BN.com, decreased 10.9 percent from the comparable nine-week holiday period a year earlier, to $1.2 billion, the company reported. More worrisome for the long-term future of the company, sales for the company’s Nook unit — which includes e-readers, tablets, digital content and accessories — decreased 12.6 percent over the same period.
“They are not selling the devices, they are not selling books and traffic is down,” said Michael Shatzkin, the founder and chief executive of Idea Logical Company, a consultant to publishers. “I’m looking for an optimistic sign and not seeing one. It is concerning.”
Though the company’s stock was down only slightly — 1.4 percent in late trading — the reaction in the financial world was swift and unforgiving.
S&P Capital IQ downgraded its recommendation on Barnes & Noble stock from hold to sell and said in a note that “we think this portends greater market share losses for the Nook over the medium term.” Barclays said in a note that the Nook’s precipitous decline was “quite concerning” and “below even our modest expectations.”
Barnes & Noble, the nation’s largest book chain, has invested heavily in recent years in developing a tablet that could compete with offerings from media giants like Google, Apple and Amazon.com. Last April, in announcing a $300 million investment from Microsoft, William Lynch, Barnes & Noble’s chief executive, said the company wanted “to solidify our position as a leader in the exploding market for digital content in the consumer and education segments.”
A few months later, the bookseller began breaking out the financial results of its Nook division, and three months ago it completed its strategic partnership with Microsoft in Nook Media L.L.C., a subsidiary, in a signal that it was ready to ride its digital business into the future.
But the performance of the Nook division has been uneven at best. While Barnes & Noble’s most recent products have won critical praise, the disappointing Nook sales figures — especially during what is supposed to be a peak buying season — underscore how difficult the challenge has been in an increasingly competitive e-reading landscape.
While other companies do not break out sales of their digital tablets, Amazon has been saying that sales of its Kindle Fire have been very strong. Analysts say Apple’s iPads also appear to be doing well.
“The problem is not whether or not the Nook is good,” said James L. McQuivey, a media analyst for Forrester Research. “What matters is whether you are locked into a Kindle library or an iTunes library or a Nook library. In the end, who holds the content that you value?”
For an increasing number of consumers, he said, the answer was not Barnes & Noble.
The declining retail sales were also troubling, especially when viewed in the context of a rise in sales among independent booksellers. The American Book Sellers Association, which has not yet released official holiday sales, estimated on Thursday that its members would be up about 8 percent over last year.
Analysts stopped short of saying that this was a do or die moment for Barnes & Noble’s Nook Media division, but they acknowledged that options for a strong digital future were narrowing.
Executives from Barnes & Noble were not available to discuss the sales numbers. But a statement from Mr. Lynch, its chief executive, indicated the extent to which the company was searching for a solution to what went wrong.
“Nook device sales got off to a good start over the Black Friday period, but then fell short of expectations for the balance of holiday,” Mr. Lynch said. “We are examining the root cause of the December shortfall in sales, and will adjust our strategies accordingly going forward.”
The most intriguing, and troublesome, question is whether the company can stay in the digital device business at all over the long run. Nook has been expensive to develop and market and the company does not have the hefty financial resources of its competitors.
Other options are strategic partnerships. Microsoft’s investment last spring was seen at the time as a way to promote Nook through a powerful partner. But sales of the Windows 8 operating system have been disappointing and the Nook has been featured as little more than an app among hundreds on the Windows 8 platform.
“It is going to prove to be a missed opportunity,” Forrester’s Mr. McQuivey said.
Last month, Barnes & Noble announced that Pearson, the British education and publishing conglomerate, was taking a 5 percent stake in Nook for $89.5 million. Analysts said that that cash investment was welcome and the partnership with Pearson, a major publisher of educational textbooks, might herald a strategy to move toward dominating an education niche market. Still, that would be a significantly smaller business.
Media Decoder Blog: Decline in Holiday Sales Is Ominous Sign for Barnes & Noble
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