Wednesday, February 2, 2011

Barnes & Noble Bankruptcy Index: Is B&N also going out of business?

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.

Last week 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. 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:

1/26: $16.50

2/1: $16.92

Change: +2.5%

As you can see, B&N's stock did pretty well the past week. Actually, when you compare it to the performance of Amazon in the past week (-1.87%) or the Dow Jones Index (+o.46%), it looks even more impressive. We wouldn't though get too excited as today the price went down to $16.41 and it looks like the jump in the price to $16.92 was mainly influenced by the report of Bloomberg that Borders
will file for bankruptcy as soon as next week.This week's grade for this parameter is: 8.5 (8)

2. What analysts say on B&N

According to, Stifel Nicolaus reviewed Borders and Barnes & Noble in a research report, stating that a Barnes & Noble buy [of Borders] may be a good tactical choice in the short term, but that it does not upgrade Barnes & Noble on account of "bankruptcy fishing" not being a sound investment thesis. Stifel Nicolaus stated that the sector pressures on Borders may give "breathing room" to Barnes & Noble strategic and operational decisions. Well, it's not very encouraging, but still more optimistic than what we heard from analysts last week. This week's grade for this parameter is: 7 (6)

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.

Nothing changed from last week -
when it comes to the brick and mortar stores B&N still haven't come out with anything that looks like a winning strategy. Therefore this week's grade stays the same: 4.5 (4.5)

4. What B&N is saying about itself

This parameter will examine quotes and statements from B&N on its financial state, strategy and other related issues.
There are no news this week and therefore this week's grade stays the same: 6 (6)

5. Steps B&N is taking
No steps were taken this week. In B&N's case no news is not good news as we believe steps should be taken and soon. T
his week's grade is: 6 (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.

GalleyCat reported earlier today that:

On the heels of news that Borders delayed payments to a number of vendors, landlords and other groups last month, two major outlets predicted that the bookseller will file for bankruptcy this month..

As we mentioned last week, 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' struggling actually show that bankruptcy, which once was unthinkable when you talked about the big book chains, is now a possibility and even more than that also for B&N. Therefore our weekly grade for this parameter is: 6.5 (6)

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 no change from last week and it still looks like B&N still has the financial strength to survive. This parameter's grade is: 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, especially now after they had successful holidays sales,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 is still not too good given how B&N is handling the situation so far. Therefore this week's grade is: 7 (7)

This week's Barnes & Noble Bankruptcy Index: 66.5 points (63.5)

As you can see, this week's index is set at 66.5 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 at least we see a small (3 points) change in the right direction from last week. We'll have to see in the next couple of weeks if this is a trend or just a one-week rise. 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!