Strategic Analysis: Barnes & Noble

Strategic Analysis: Barnes & Noble

Executive Summary

Barnes & Noble is a key player in the Book Retail Industry. This mature industry has been experiencing slow growth over the last several years, much slower than overall retail sales. Barriers to entry into this industry are quite high, and suppliers have modest influence over booksellers. The introduction of the Internet has brought about many changes to this industry. It has increased rivalry, buyer power, and substitutes. Spending time "surfing the net" is one of many substitutes to reading books nowadays. Other technological advances, such as VCR's and video games, have replaced time otherwise spent reading. Buyers have greater influence over the industry, because they have more buying options and faster price comparison ability.

In order to remain competitive in the market, it is necessary to not only understand the book industry as a whole, but to know what your competitors objectives are in the market. Two of Barnes & Noble's largest competitors are Borders Group, Inc. and Amazon.com, whose strategies are profiled in the paper.

Barnes & Noble is the largest bookstore chain in the world. In 1997, they expanded their services to customers by launching their bn.com website. Barnes & Noble's brand name has superior brand recognition, which is a key factor in attracting customers to both their brick and mortar stores and their website. The Company leads book retailing with a "community store" concept that offers a comprehensive title base, a cafй, a children's section, a music department and ongoing events, such as author appearances and children's activities.

Barnes & Noble's current strategy is to increase its share of the consumer book market, as well as to increase the size of the market. In order to do this, the brick and mortar stores will continue to maintain close proximity to their customers. Visibility, access, parking, and high traffic areas are among the top priorities when choosing new locations. Its brick and mortar stores will continue to maintain close proximity to their customers through rigid location criteria. Continual efforts are planned for improvement to the design, layout and navigation of the bn.com website. Expanded product offerings for the website and strong alliances are also a key part of their strategy.

Recommendations for Barnes & Noble include leveraging their brand name and capitalization of its strength of distribution capabilities. Using the name and the physical stores may allow Barnes & Noble to align the brick and mortar business with its online business and ultimately create additional brand loyalty. In addition, relying on Barnes & Noble's core capability in distribution will allow for enhanced customer satisfaction through faster product delivery times.

Table of Contents

Table of Contents I

Retail Book Industry Analysis II

-Substitutes III

-Entry IV

-Rivalry IV

-Buyer Power V

-Supplier Power V

Competitor Analysis VI

-Borders Group Inc. VI

-Amazon.com IX

Firm Analysis XII

-Resources XIII

-Capabilities XIV

-Sources of Competitive Advantage XIV

-Strategy XVI

Conclusions XVII

Recommendations XVIII

References XXIII

BOOK RETAIL INDUSTRY ANALYSIS

In order to analyze an industry, it is important to determine where it is in the industry life cycle. During the 1970's and 1980's, the book retail industry was expanding at a phenomenal rate. New stores were opening and growing into markets previously not served by any bookstore. Throughout this boom period, the number of new books published each year grew, new authors increasingly found their way into print, and profit for publishers rose in robust percentages.

In the mid-1990's, the book retail industry began evolving into the maturity stage of the industry life cycle. Increasing market saturation and slowing growth caused this evolution. By 1995, publishers' growth rates were down 2.1%, "the lowest growth in ten years."  According to data compiled by the American Booksellers Association, total bookstore sales for 1999 were modestly better than 1998. 1999 sales reached $13.7 billion, up only 3.7% over 1998. By comparison, overall retail sales increased by a strong 9 percent for this same period. Total bookstore sales for 1997 were $12.5 billion. Industry surveys indicate that the four largest chains accounted for approximately 45.2% of total sales in 1997. 

According to the 1997 Consumer Research Study on Book Purchasing, book purchases per U.S. household grew just 0.6 percent from 1996 to 1997. During the same period, the U.S. population grew approximately 1 percent. This statistic shows that the U.S. book market is growing slower than the population. 

The 1998 Consumer Research Study on Book Purchasing found that as the American economy thrives and sets impressive new growth records, growth in book sales continues to slow. This survey found that it was the upper income (>$75,000) professional households, also the heaviest book buyers, who are most responsible for the drop in unit sales. According to the Book Industry Study Group, the study suggests that "the book industry appears to react counter-cyclically to the overall economy. In good times, consumers may spend their disposable income on other forms of entertainment or on more expensive durable goods." This study also revealed that 1.9 percent of total book sales for 1998 could be attributed to Internet purchases. This 1.9 percent does not include children's books, textbooks, or other online sales to college students. The American Bookseller Association's CEO, Mark Domnitz,