Barnes & Noble, Inc.

founded: 1873 (incorporated 1894, as c.m. barnescompany)

Contact Information:

headquarters: 122 5th ave.
new york, ny 10011 phone: (212)633-3300 fax: (212)675-0413 url: http://www.barnesandnoble.com

OVERVIEW

Barnes & Noble, Inc., the largest bookselling chain in the United States, is best known for its book "super-stores"—giant, supermarket-style stores that it introduced in the 1970s. These stores, numbering 483 in 1998, offer a wide variety of books at discount prices. Barnes & Noble also operated 528 mall-based bookstores in 1998, under the names B. Dalton Bookseller, Doubleday Book Shops, and Scribner's Bookstores. It also publishes books under its own name, and is a leading seller of books through mail-order catalogs.

Although most of Barnes & Noble's business is carried out in the United States, it also owns part of Chapters, Canada's largest retail book chain, and Calendar Club, a seasonal kiosk operation that operates both within the United States and internationally. In 1997 Barnes & Noble entered the world of online bookselling challenging pioneer Amazon.com in the growing Internet commerce business. Its total sales for the fiscal year ending January 31, 1998, were $2.8 billion. Chairman Leonard Ruggio and his brother Stephen, company vice chairman, hold about 28 percent of Barnes & Noble's stock.

COMPANY FINANCES

From fiscal 1994 through fiscal 1998 Barnes & Noble's total revenues skyrocketed: starting with $1.62 billion in 1994, revenues rose to $1.97 billion in 1995, $2.45 billion in 1996, $2.79 billion in 1997, and $2.8 billion in 1998. (Barnes & Noble's fiscal year runs from February through January.) In the same time period, net income rose from $8 million in 1994 to $53 million in 1998.

HISTORY

In 1873 Charles Montgomery Barnes opened a second-hand book business in Wheaton, Illinois. Soon afterward he moved to Chicago, where he began to sell new books as well. Within 20 years his C.M. Barnes Company had limited itself to selling schoolbooks. His son, William R. Barnes, joined the family business, but decided in 1917 to move to New York and sold the original business. In its place, he invested in a New York educational bookstore, Noble & Noble, renaming it Barnes & Noble. William R. Barnes stayed with the company only until 1929, but the company name was kept.

Barnes & Noble was a wholesale business, dealing with schools, libraries, and book dealers. Customers who came in looking to purchase a single book were allowed into the building, but not encouraged; eventually a small retail corner was set up for these customers. The demand for a retail textbook store grew, and Barnes & Noble opened its first retail store in New York City, enlarging it in 1941 to serve the students of the many colleges and schools there. Innovations in this store included a multi-line telephone service and piped-in "Muzak." The store had a stock of 2 million books—huge for the time. From the 1940s until the 1970s Barnes & Noble steadily grew, adding an import and export division, publishing children's educational books and a series of study guides, and opening an outlet for used books and publishers' remain-ders—the outlet bought used books from 200 campus bookstores. The Guiness Book of World Records for 1972 listed Barnes & Noble as the world's largest bookstore.

By the early 1970s, however, the store was doing poorly. John Barnes, the last family member to run the business, died in 1969, and Barnes & Noble was bought by Amtel, a corporation that also made toys and tools. Business went downhill, and in 1971 Amtel sold the store to Leonard Riggio who as a teenager worked in the New York University bookstore. (Riggio, in 1965, at the age of 25, borrowed $5,000 to buy a college bookstore.) Soon his tiny Waverly Book Exchange was matching the sales of his old employer, and he bought and opened 10 more stores in the next five years. After he bought the Barnes & Noble store, he changed all the stores' names to Barnes & Noble.

Riggio expanded Barnes & Noble, adding nonfiction books and "how-to" books. His philosophy was that more people read for information than for entertainment. Soon new stores were opened in New York, New Jersey, and Pennsylvania, but the centerpiece of Riggio's business was a new concept in bookstores: a book supermarket. He opened a huge three-building annex across from the original New York store, with fiction, best-sellers, and gift books added to the store's stock. But most important of all, even new books and bestsellers were deeply discounted. Riggio targeted a new audience: shoppers who might not even read the books they bought. Riggio's idea was an instant success and customers crowded the stores, pushing shopping carts through the aisles.

In the late 1970s Riggio also began to acquire other retail bookstore chains, including Bookmasters, Marboro Books, Inc., B. Dalton Bookseller (the second-largest chain at the time, behind Walden Books), Doubleday Book Shops, and Bookstop. Many of these stores were located in suburban shopping malls. Riggio also reacquired rights to the Barnes & Noble name for publishing books, which had been sold when John Barnes died in 1969.

By the 1990s Riggio had shifted the focus of his stores. Many "superstores" were added, and prices were still discounted, but the stores were designed as welcoming spaces with cafes and play areas that invited customers to browse and socialize. Each of these stores cost more than $1 million to build; however, even with rapidly rising revenues, Barnes & Noble posted losses in the early 1990s. Riggio decided to raise cash by selling stock publicly in late 1993 (keeping almost one-third of the stock himself). Buyers were so eager to buy the stocks that the initial stock price was driven to almost double what experts had predicted.

In the 1990s competitors frequently complained that Barnes & Noble and its rapid growth were damaging other chains and destroying small, independent booksellers. However, many customers seemed pleased to select from Barnes & Noble's huge stock of books, and to pay less for them as well. Year after year in the later 1990s, Barnes & Noble announced record sales and profits.

STRATEGY

As outlined in its annual report, Barnes & Noble has a multifaceted strategy. One of its main targets is the chief book-buying population in the United States—people between 45 and 64 years old (a segment that is projected to grow in coming years). It clusters its stores in high-traffic areas, convenient to transportation and parking, and offers extended shopping hours. Having a wide variety of titles for customers to select from also is key to the company's strategy; each store features between 60,000 and 175,000 titles, and other books not in stock can be specially ordered. Store employees are expected to be helpful and knowledgeable, and the company strongly encourages promotions to management from the existing pool of employees. Each store is designed to resemble a European library, with comfortable seating, attractive space, and refreshments. The opening of every new store is accompanied by a major campaign, including print and radio advertising, mail, and community events.

Discounted prices are based on a national pricing strategy, with hardcover best-sellers discounted by as much as 30 percent. Barnes & Noble also ties in its other business activities with its store operations. Books published under the Barnes & Noble imprint are prominently featured in the company's direct-mail catalogs, along with publishers' remainders and hard-to-find imported books.

INFLUENCES

In addition to the major influences discussed above—notably the arrival of Leonard Ruggio at the helm—Barnes & Noble has been both helped and hindered by its rapid growth. The expansion of the company's network of "superstores" has been accompanied by the inevitable closing of small, independent bookstores. Along with Barnes & Noble, Borders Bookstores (once a single Michigan bookstore) has also became a growing superstore chain in the 1990s, setting off what one columnist in Fortune referred to as "bookstore wars."

The superstore concept was highly successful for Barnes & Noble. At the same time, its growth and success earned Barnes & Noble the hostility of many small bookstore owners and some community activists. In addition, publishers also have been displeased with the superstores' high return rate for unsold books. (Publishers often agree to take back unsold books from bookstores, unlike many other businesses in which a store must absorb the cost of unsold items.) In March 1998 a lawsuit was filed in California against both Barnes & Noble and Borders Bookstores by the American Booksellers Association (ABA) and 26 independent bookstores. The stores and the ABA claimed that the giant chains had engaged in unfair trade practices and competition that had harmed their businesses.

CURRENT TRENDS

In the late 1990s Barnes & Noble placed an increased emphasis on opening more superstores, sometimes as many as 150 in a single year. At the same time, it decided to close or restructure many of its mall-based bookstores, such as B. Dalton Bookseller stores, whose sales had been declining. Ironically, the company itself admitted that the main competitor for these mall-based stores probably was the book superstore. More than 50 of these mall-based stores were closed every year beginning in 1989.

In March 1997 Barnes & Noble launched an online bookselling service through America Online (AOL). AOL agreed to allow Barnes & Noble to be the exclusive bookseller on its site, thus shutting out Amazon.com, previously the leading online bookseller. Two months later, Barnes & Noble also set up its own web site for online purchases. The online service offers discount prices similar to those in its retail stores. The entry of Barnes & Noble into the online market set off a price war with Amazon.com; with the expected addition of Borders Bookstores close behind Barnes & Noble, competition was expected to be fierce. After nine months of operation, the Barnes & Noble online service had lost $9 million. (Amazon.com also was still losing money, even though it had been operating far longer and had taken in almost $150 million in sales in 1997.) Some analysts suggested that although the online bookselling business showed promise, like many other Internet-based businesses it involved very high startup, marketing, and expansion costs, and profits were not possible in the initial months or even years.

CORPORATE CITIZENSHIP

Barnes & Noble tries to maintain a "community bookstore" atmosphere, even in its giant superstores. Many stores have a cafe, and offer a wide variety of activities ranging from children's story hours to author appearances. On its web site, Barnes & Noble offers visitors an "online community," in which they can discuss works of various authors or literary topics, recommend books to other readers, and even chat online with authors.

In 1990 Barnes & Noble established the Discover Great New Writers Program to give new authors a chance to reach a wider audience. In connection with this program, Barnes & Noble has bestowed an annual Discover Great New Writers Award since 1993. This award is given to a first-time American novelist who has been featured in the Discover Great New Writers Program during the previous year, and includes a $5,000 prize to the winner. A description of each award-winning book is featured on the company web site.

Barnes & Noble supports First Book, a national organization that provides books to children who have difficulty accessing them outside of school. It also is a chief sponsor of Writer's Harvest, an annual series of readings sponsored across the United States by Share Our Strength, an anti-poverty organization.

FAST FACTS: About Barnes & Noble, Inc.

Ownership: Barnes & Noble, Inc. is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: BKS

Officers: Leonard Ruggio, Chmn. & CEO, 57, $1,440,000; Stephen Ruggio, VChmn & COO, 43, $736,000; J. Alan Kahn, COO, 51; Mitchell S. Klipper, Exec. VP, 40, $736,000

Employees: 29,500 (1998)

Principal Subsidiary Companies: Barnes & Noble, Inc. operates through subsidiaries in the United States, including Barnes & Noble Booksellers, B. Dalton Bookseller, Doubleday Book Shops, and Scribner's Bookstores. It is a partial owner of Chapters, a Canadian bookseller, and Calendar Club, which operates internationally.

Chief Competitors: Barnes & Noble has many competitors among traditional retail bookstores, mail-order businesses, and online booksellers. Its chief competitors include: Borders Bookstores; Walden Books; Books-A-Million; and Amazon.com.

GLOBAL PRESENCE

Barnes & Noble chiefly operates stores within the United States. It also is a partial owner of Chapters, Canada's largest retail book chain, and Calendar Club, a seasonal kiosk operation that operates both within the United States and internationally. With the advent of its online business as well as its ongoing mail order catalog business, Barnes & Noble is likely to increase its business outside of the United States. When Barnes & Noble began to sell its stock publicly in 1993, about one third of its stock was retained by CEO Ruggio's financial partner Vendex, a Dutch conglomerate.

CHRONOLOGY: Key Dates for Barnes & Noble, Inc.

1873:

Founded

1894:

Incorporates as C.M. Barnes Company

1902:

William R. Barnes becomes president

1917:

William R. Barnes sells the original business, moves to New York, and invests in Noble & Noble-renamed to Barnes & Noble

1929:

William R. Barnes leaves the company

1941:

Barnes & Noble enlarges its first retail bookstore

1944:

Begins publishing educational books for children

1969:

John Barnes dies; bookstore is purchased by Amtel; rights to publish under the Barnes & Noble name are sold

1971:

Amtel sells the company to Leonard Riggio

1972:

The Guiness Book of World Records Lists Barnes & Noble as the world's largest bookstore

1979:

Acquires Bookmasters

1986:

Buys B. Dalton Bookseller

1990:

Establishes the Discover Great New Writers Program; purchases Doubleday Book Shops

1991:

Reacquires rights to publish under the Barnes & Noble name

1993:

Initial Public Offering of stock

1997:

Launches an online bookselling service through American Online

1998:

American Booksellers Association files a lawsuit against Barnes & Noble and Borders Bookstores

EMPLOYMENT

As of early 1998 Barnes & Noble employed 14,500 full-time employees and between 15,000 and 17,000 part-time hourly employees. Because the bookselling business fluctuates widely by season, the part-time employee number varies as well. About 75 percent of Barnes & Noble's store managers were promoted from within its existing group of employees, and none of its employees are represented by unions.

SOURCES OF INFORMATION

Bibliography

"barnes & noble, inc." hoover's online, 26 july 1998. available at http://www.hoovers.com.

barnes & noble, inc. annual report. new york: barnes & noble, inc., 1997.

berreby, david. "the growing battle of the big bookstores." new york times, 8 november 1992.

nickell, joe. "online booksellers pay to win." wired, 16 march 1998. available at http://www.wired.com.

norton, rob. "why the bookstore wars are good." fortune, 27 october 1997.

panepinto, joe. "battle in the online bookstacks: b&n vs. amazon." family pc, september 1997.

symons, allene. "barnes & noble to buy b. dalton: will become largest chain." publishers weekly, 12 december 1986.

woodward, a. "barnes & noble, inc." international directory of company histories, vol. 10. detroit: st. james press, 1995.

For an annual report:

on the internet at: http://www.sec.gov/cgi-bin/srch-edgaror write: barnes & noble, 122 5th ave., new york, ny 10011

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. barnes & noble's primary sics are:

5942 book stores

5961 catalog and mail order houses

6719 holding companies, nec