Thursday, March 3, 2011

Barnes & Noble Bankruptcy Index: The stock's price continues to go down

This week our B&N bankruptcy index is moving permanently to Thursday and will be published from now on on Thursdays. Just a short reminder - As Borders filed for bankruptcy, we look at Barnes & Noble, the nation's largest book chain to see if they will follow Borders and also go into bankruptcy and if so, when exactly.

To do it more analytically we launched few weeks ago 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 too good and bankruptcy is becoming a more realistic 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 Thursday, 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's our update for this week (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:

2/23: $14.70
3/2: $13.20
Change: -10.2%

As you can see, B&N's stock continued to fall down last week with a decrease of 10.2% in the stock's price. Just for comparison, the S&P500 Index almost didn't change during this period (+0.1%) and Amazon fell in 2.6%. I guess this is a combination of both the discontent of the market of B&N's decision to suspend its dividend as well as
further backlash from Borders' bankruptcy, as Mark Riddix explains on

The recent bankruptcy of Borders (NYSE: BGP) has caused many investors to reevaluate their thoughts on companies in the retail books sector. Borders was forced to declare bankruptcy under a large mountain of debt, and now many investors are questioning whether or not similar companies like Barnes & Noble (NYSE: BKS) can stay afloat. Can B&N survive where others have failed?

This week's grade for this parameter is also going down to: 6.5 (7)

2. What analysts say on B&N

Mark Riddix of New Horizons Financial Management was optimistic this week:

Overall, things are looking up at Barnes & Noble especially given that its main competitor, Borders, is on its last legs. Barnes & Noble has 25% of the e-book market and has its own reader to compete against the Kindle. Its online website continues to generate more revenue for the company, and ultimately, Barnes & Noble does not have to topple Amazon to be successful in the digital publishing industry. The company can generate sizable income and make for a high-quality investment by being the number two player in the industry and an alternative to the 800 pound gorilla that is Amazon.

No other comments or analysis were found. This week's grade stays the same: 7 (7)

3. New strategy to regain sales in the brick and mortar stores

Here's what we have so far: 1. More strategic space for the Nook 2. More toys, games and educational products. Shawn Graham shares on Fast Company what he found on his last visit at his local B&N store with regards to the second point:

Upon entering the store, the thing that I was most surprised by was the significant amount of retail space they are now dedicating to hobbies, games, and childhood learning which I'm guessing takes up approximately 350-500 square feet that was once populated by books. This new assortment diversifies their retail product offerings and also serves as an extension to the reading and play area for children already housed within many Barnes & Noble stores. Based on the prominently displayed LEGO products, it appears they are hoping to attract more kids which will equal more parents which will equal more retail spending--not to mention continuing to get kinds into their customer pipeline as early as possible.

Bottom line
: Just like Borders, B&N still doesn't have yet a clear and comprehensive strategy that will transform their brick and mortar stores from a liability back to an asset. This week's grade stays the same: 4 (4)

4. What B&N is saying about itself

Silence this week.. This week's grade for this parameter stays the same: 6 (6)

5. Steps B&N is taking
Nothing much here this week. Only the litigation settling with
Spring Design, which initiated legal action against Barnes & Noble in November 2009 in connection with Spring Design’s Alex eReader. Bottom line: Nothing to write home (or the investors about). This week's grade stays the same: 6 (6)

6. Competitors
This parameter will mainly look into Borders and how its problems affect B&N.
This week there are no big news on this end and the grade stays the same. 5.5 (5.5)

7. Financial strength

Last week Barnes & Noble published the results for the third quarter
. This week we had no updates. This week's grade stays the same: 7 (7)

8. Strength of the digital business

Last week Michael Wolf had an interesting idea on GigaOm - how about B&N extending its value proposition to digital publishing?. He explained:

But as I discuss in my weekly analysis at GigaOM Pro (subscription required), they must do more. Let’s face it, the total pie in books is going to shrink, and the long and unwieldy value-chain from writer to customer is going to collapse. Amazon knew this a long time ago, and that’s why they’ve been moving to disintermediate the publisher and the wholesaler in the e-book world by becoming, essentially, the entire value chain themselves.”

B&N should do the same, and do it quick. Sure, like Amazon, it launched its own self-pub platform in PubIt!, and it tinkered around with a few imprints on the print side for some time. But in the collapsing world of books, it’s every man for himself, and its time for B&N to accelerate its push into becoming a digital publisher.

Definitely an interesting idea. I wonder if B&N are considering it.. Other than that we didn't find any updates and this week's grade stays the same: 8 (8)

9. Sense of urgency
It looks like B&N still think they have time and are not worried at all, or at least not worried enough to begin doing something (again, we don't believe more toys and extra room for the Nook is a winning strategy) with their brick and mortar stores. 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). This week's grade stays the same: 5.5 (5.5)

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 B&N's quarterly report is not too good. This week we're still more worried as the collapsing stock's price is making the possibility of bankruptcy much more realistic to many who thought this option is not on the table
. This week's grade stays the same: 6 (6)

This week's Barnes & Noble Bankruptcy Index: 61.5 points (62)

As you can see, this week's index is set at 61.5 points, which translates into the scale of 60-69: B&N
doesn't look too good and bankruptcy is becoming a more realistic threat. Definitely not a good place to be at and too close to the red alert zone. Too close. Yet it looks like B&N is still not in immediate trouble. See you next Thursday.

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!