Wednesday, February 9, 2011

Barnes & Noble Bankruptcy Index: The failure of Groupon's special coupon deal

While Borders, the nation’s second-largest book chain, is on the verge of bankruptcy, we continue to look at Barnes & Noble, the nation's largest book chain to see if they follow will Borders and go into bankruptcy and if so, when exactly.

Two weeks ago we launched a new B&N Bankruptcy Index, which is based on 10 parameters, which receive a grade between 1-10 (1 - worst grade, 10 - best grade). Hence we receive a 0-100 point index scale, which we divide into several ranges as follows:

90-100: B&N is in an excellent shape. Couldn't be better!
80-89: B&N is doing great. Bankruptcy is no longer a real threat.
70-79: B&N could do better and has to be cautious of bankruptcy.
60-69: B&N doesn't look good and bankruptcy is becoming a real threat.
50-59: Bankruptcy is a clear and present danger.
49 and less: Red alert! Bankruptcy is just around the corner and is likely to happen within a short time frame.

We will check the
B&N Bankruptcy Index every Wednesday, updating each one of the parameters included in the index and will analyze the trend. You can follow the weekly changes in the index from the day it was launched on the Barnes and Noble Bankruptcy Index page on our website.

So here we go (in brackets is last week's grade):

1. Confidence of the stock market in B&N

This parameter will look at the performance of the B&N stock (symbol:
BKS) in the last week. The performance of B&N's stock is an indication of the confidence the market has in the ability of B&N to maintain a viable business.

So let's look at last week's figures:

2/2: $16.41

2/8: $17.11

Change: +4.2%

As you can see, B&N's stock did pretty well the past week. They did much better comparing to the S&P500 Index (+1.57%), but not as good as Amazon (5.49%). In other words, the markets still believe in B&N, unlike the situation of Borders, for example, which continues to go down - last week (2/2-2/8) the stock went down by 7.69%.
This week's grade for this parameter is: 8.5 (8.5)

2. What analysts say on B&N

We haven't find any updates here so this week's week's grade for this parameter stays the same: 7 (7)

3. New strategy to regain sales in the brick and mortar stores
Just like Borders, B&N still doesn't have a a clear and comprehensive strategy that will transform their brick and mortar stores from a liability back to an asset.

This week was all about the Groupon offer (
$10 for $20 Worth of Toys and Games, Books and More at Barnes & Noble). With regards to B&N's brick and mortar strategy, this deal only showed the lack of strategy. As we asked B&N last Friday, if you already go with a nation-wide deal and offer such a great offer, why not to use it to make your stores stronger by limiting it just to purchasing in stores? Your problem is with brick and mortar sales, not your online sales. Wouldn't this deal be a great incentive to bring back customers to stores?? Anyway, they didn't do it and therefore this week's grade is going down: 4 (4.5)

4. What B&N is saying about itself

We haven't find any updates here so this week's week's grade for this parameter stays the same: 6 (6)

5. Steps B&N is taking
This week was as we said all about the Groupon special deal. It was supposed to be not just a special deal but also a way of creating positive momentum and presenting B&N's strength to those who wonder what's their situation. It was also in a way
a reply to Amazon's deal from last month. Amazon offered the same offer ($20 coupon for $10) on LivingSocial. But even if the offers were similar, in terms of results they totally different.

Amazon's offer was a huge success - according to Amazon sold 1,378,938 coupons in a single day. Now, nor Groupon neither B&N provided information on the results of B&N's deal, and since the deal was area based it's not so simple to get the results by yourself, but we tried and looked into the number of B&N coupons sold on the 6 largest cities in the U.S.:

New York City - 26, 629
Los Angeles - 21,557
Chicago - 75,221
Houston - 10,272
Phoenix - 11,674
Philadelphia - 9,940
Total: 155,293 coupons.

Even if we assume that the total number of coupons sold on all areas was two times than this figure (i.e. 310,000 coupons), we still look at less than 25% of what Amazon achieved and Amazon, to remind you, did it in a single day, whereas B&N's deal was going on for 3 days. In other words, consumers don't really find B&N that attractive in comparison with its competitors. Not that we didn't have an idea that this was the case, but this deal came and provided a very interesting example enabling us to compare what you might call the "attractiveness factor" of both Amazon and B&N. Well, Amazon won. T
his week's grade is: 5.5 (6)

6. Competitors
This parameter will mainly look into Borders and how its problems affect B&N.
This week it looks like Borders' bankruptcy is closer than ever.

Borders are still on the verge of bankruptcy. Only today, Al Greco, a book publishing expert and professor of marketing at Fordham University's Graduate School of Business Administration, is quoted on saying that "he expected the company to seek bankruptcy protection soon. "It's pretty clear they will file for bankruptcy; it's just a question of when," he said. "Borders at one time was an unbelievably impressive bookstore chain - people loved it. The day they go into bankruptcy will not be a happy day for publishers, authors and readers."

As we mentioned earlier, there are positive and negative effects to the upcoming bankruptcy on B&N. On the positive side, for example, Stifel Nicolaus stated that the sector pressures on Borders may give "breathing room" to Barnes & Noble strategic and operational decisions. On the negative side, Borders' bankruptcy might show that what was once was unthinkable when you talked about the big book chains, is now a realistic option. We feel that Borders' bankruptcy can do more harm than good to B&N and as Borders seems to getting closer and closer to bankruptcy our weekly grade for this parameter is: 6 (6.5)

7. Financial strength
B&N's latest financial report was published on November 2010 for its second quarter, which ended Oct. 30. Yesterday B&N announced the company will report fiscal 2011 third quarter earnings results on Tuesday, February 22nd.

So there's no change here from last week, even though the Groupon offer will cost B&N around $2.1 million (155,293 coupons x13.5 average loss on each one of them, which includes the $10 discount and Groupon's estimated fee). Therefore this parameter's grade stays the same: 7.5 (7.5)

8. Strength of the ebook business

No news on this front (maybe we should call it e-front?). This week's grade is: 7.5 (7.5)

9. Sense of urgency
Maybe B&N think they still have time but this is not the case of course and if we can learn something from the Borders' case, it's how fast things go bad when your reach a certain tipping point of financial distress or distrust of your stakeholders (consumers or publishers for example). Therefore this parameter will try to look into B&N's sense of urgency.

No news on this front as well The week's grade is: 6 (6)

10. General feeling
This parameter will be an indication of our impression of all the materials read and analyzed for this index. Our feeling this week, after the Groupon offer is that B&N still lacks a comprehensive strategy to address its problems as well as a clear idea how to bring customers again to its stores. Moreover, the failure of this deal in comparison to Amazon's deal only shows how deep B&N's problems are. Therefore this week's grade is: 6.5 (7)

This week's Barnes & Noble Bankruptcy Index: 64.5 points (66.5)

As you can see, this week's index is set at 64.5 points, which translates into the scale of 60-69: B&N doesn't look good and bankruptcy is becoming a real threat. Definitely not a good place to be at, but it could definitely get worst, although we hope it won't! See you next Wednesday.

To view the weekly changes in the index visit Barnes and Noble Bankruptcy Index on our website.

You can find more resources on the future of bookstores on our website at

Raz @ Eco-Libris

Eco-Libris: Working to green the book industry!

1 comment:

Anonymous said...

So what's Borders score? I was betting they would have filed by now.