Barnes and Noble
...ks from over 1,700 publishers as well as wholesale distributors. Publishers have control over the distribution of titles (through copyright protection), the list price and the retailers' cost price. These limitations do afford the publishers some supplier power over the book retailers. However, these same publishers rely on the marketing and distribution channels of the retailers in order to sell their books. The significant purchasing volume of the larger book retailers, such as Barnes & Noble and Amazon, provide an advantage in negotiating with suppliers. COMPETITOR ANALYSIS 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. We have provided a profile of each of these companies including their strategies and their current position in the market. BORDERS GROUP, INC.. Borders Group, Inc. (BGP on NYSE) is the second largest operator of book and music superstores based on sales and number of stores. Its subsidiaries include Borders, Inc., Walden Book Company, Inc., Books etc., and it also operates an e-commerce site under the name of Borders.com. As of March 21, 1999, there were 256 stores operated under the Borders name, including three in the United Kingdom, one in Singapore, and one in Australia. There are 885 mall-based bookstores mostly under the name of Waldenbooks and 26 bookstores in the United Kingdom under the name Books etc. Sales for the year 1999 were $2,590.4 million, which was an increase of 14% over 1998’s sales of $2266 million. This growth was due to both the number of Borders’ superstores as well as the 3.5% comparable store sales increase.10 Borders.com offers customers over 650,000 titles and 10 million book, music and video items in stock and ready for immediate shipping from Border’s distribution center. Borders.com opened in May of 1998 and has received high rankings from Internet and industry experts in several surveys of the Internet’s best websites. Borders Group, Inc. believes that sales on the Internet have negatively affected the company’s sales and are expected to continue in this direction, but the impact cannot be quantified.11 In order to prevent this from occurring further, they are working on a way to integrate Borders.com with its stores. They are doing this by providing kiosks in the stores where consumers can order books, music, and videos as well as find out information about these items. Borders Group, Inc. is a dynamic group of retail companies with one common goal: To sell books, music, video and other information and entertainment products profitably by making the experience of shopping easy, enticing, enjoyable, and enriching. With a complete understanding of our customers’ needs, Borders Group offers an experience like no other. From the destination shopping environment of our Borders Books, Music, Video, and Café stores around the globe, to the quick convenience of our Waldenbooks and books etc. shops, or the ultimate in online access through Borders.com, Borders Group is continually evolving to meet the various needs of our customers.12 This is Borders mission statement that exemplifies their dedication to the customer experience in their stores as well as their focus on the consumer. Border’s Strategy & Objectives Borders group has one very important strategic goal in its business strategy - to continue its growth and increase profitability. They plan on doing this in several ways including the continued expansion and refinement of its superstore operation in the United States and internationally and the continued focus on key store openings in its mall-based bookstore operations and expansion of its kiosk operations.13 Another way to achieve their goal is through web-based technologies that will enhance the customer experience both online and in their stores as well as realizing the economies of scale that occur through the combination of some of its book and music operations. Borders Industry Assumptions Borders believes that they offer superior selection and service to their customers in comparison to their competitors. Each superstore offers a wide variety of books, excellent customer service, value pricing and an inviting and comfortable environment designed to encourage browsing. By offering activities, a café, and comfortable seating they hope to increase their sales and invite more customers into their stores. Borders direct competition from other superstores includes Barnes & Noble, Books-A-Million, Crown Books and Media Plax. About 85% of Borders stores face competition from one of the above retailers. Borders also competes with one of its own, Waldenbooks. Another form of competition includes specialty stores that offer books in a particular area of specialty, independent single store operators, variety discounters, drug stores, warehouse clubs, mail order clubs and mass merchandisers.14 Borders also faces competition within its music and video businesses. Their direct competitors here are Tower Records, Musicland, Media Play, Blockbuster, and Suncoast Motion Picture Company.15 Borders Resources & Capabilities Borders Group believes it has the most sophisticated inventory management system in the retail book industry. This system has a centrally controlled expert system that uses artificial intelligence and is able to forecast sales and recommend inventory levels for each book in each store. The system also allows Borders to have higher in-stock positions, a broader selection of book titles, and increased sales per store and sales per square foot, while effectively managing inventory investment to provide Borders stores with a more productive inventory assortment. As a result, management believes this proprietary system has been a principal reason for Borders’ superior performance, and that in the long run it will enable them to offer a more productive assortment of inventory throughout its operations.16 AMAZON.COM Realizing the immense potential of setting up a retailing business on the web, Jeff Bezos was faced with the following dilemma: Out of the endless items that could be sold on the internet, which item would give him the most profitable business opportunity? Although Jeff had no previous experience in book retail, he decided on selling books because of the following factors: • There is a broad field of book publishers and too many books to be carried by any single bookstore. • Books may be classified as “search” goods as opposed to “experience” goods, which must be experienced before they are bought. This characteristic of books makes them amenable to sell over the Internet. • There is plenty of room for bringing down margins, i.e. offering customers deep discounts. Jeff started Amazon.com, Inc. in 1994 in his garage in a Seattle suburb, wrapping orders and then delivering them to the post office in the family car. The company opened its virtual doors in July 1995 and went public on May 15, 1997 (The IPO price was $18.00, $1.50 adjusted for the 2-for-1 stock split payable on September 1, 1999). Jeff Bezos and his family own over 50% of Amazon.com. Amazon.com is listed on the NASDAQ as AMZN. Amazon.com’s Strategy & Objectives Amazon.com has identified the following as key success factors (KSF) in its business model17 • A strong brand position. • Providing customers with outstanding value and a superior shopping experience. • Massive sales volume. • Realizing economies of scale and scope. Amazon.com’s long-term strategy is very tightly woven around these KSFs. Jeff Bezos named his company Amazon.com after the Amazon River, which also supported his (at the time) vision of making his company “the earth’s biggest bookstore”. According to Media Metrix, Amazon.com is the only bookseller in the world’s top 500 websites. According to one analyst report, Amazon.com is estimated to have over 80% of the online bookstore market. However, with time, Jeff’s vision for Amazon has evolved much further than just being the earth’s biggest bookstore. The vision is to be the world’s biggest one place-shopping stop for online shoppers; to become a premier general online retailer by leveraging its existing brand and business model. 18 Amazon.com has most recently made news with the following in support of its long-term strategy: • Amazon.com has bought a stake in Living.com and is using the store to set up a house wares (furniture, beds, home textiles, etc.) e-commerce section on its site. • Amazon.com has made a deal in the online car industry boosting the fortunes of a new player -- Greenlight.com -- while laying the foundation for the addition of its own car "tab" by year's (2000) end. These moves will further entrench the model of direct auto sales over the Internet. • Amazon.com has expanded its stake in Drugstore.com (it now owns nearly 28 percent of the firm), and has given Drugstore.com a "tab" on the Amazon site. • In 1999, Amazon.com opened up stores selling software, video games and home improvement products. Amazon’s long-term strategy appears to be in harmony with its resources and capabilities. As Amazon.com realizes its long-term strategy and solidifies its brand even further, Amazon.com hopes that e-commerce sites that sell only books and music, such as Barnesandnoble.com will face increased challenges to lure people to come to their site to buy books and music, as opposed to going to Amazon.com for a more complete shopping experience. Amazon.com’s Industry Assumptions Amazon.com’s entire business is based on selling over the web. So, one of the fundamental assumptions made by Amazon.com is that people will not only continue to buy over the web, but that this will continue to increase with time. Another assumption made by Amazon is that more consumer loyalty can be gained by diversifying into selling more than just books over the web i.e. by providing a one-place shopping mall to online consumers. Finally, Amazon.com assumes that government (both domestic and international) regulations will continue to be favorable to online-retail. Amazon.com’s Resources And Capabilities Over the course of its life, Amazon.com has experienced tremendous growth each year. Net sales for the fourth quarter of 1999 were $676 million, an increase of 167 percent over net sales of $253 million for the fourth quarter of 1998. Pro forma operating loss for the fourth quarter of 1999 was $175 million, compared to a pro forma operating loss of $18 million in the fourth quarter of 1998. Fourth-quarter pro forma net loss was $185 million, or $0.55 per share, compared with a pro forma net loss of $22 million, or $0.07 per share, in the fourth quarter of 1998. This increase in net sales was mainly fueled by strong sales in its new consumer electronics store. Although Amazon.com’s books are still in the red, analysts expect Amazon to have positive operating profits by the year 2002. This ability to inspire analyst confidence and create investor excitement is one of Amazon.com’s biggest capabilities that has allowed Amazon.com access to huge capital required for fueling its growth. Amazon.com has a very strong brand name presence in the online-retail market, which is primarily due to their successful exploitation of their “first-mover” advantage. Amazon.com should be able to leverage this brand name as it realizes its plans for expansion in the future. Jeff Bezos, who is well respected and considered an exceptional visionary in the online-retailing industry, is yet another important resource for Amazon.com. Amazon.com has strived hard to create a work environment that is conducive to the fast-pace and dynamic nature of their industry. Amazon.com’s work culture, as stated by Jeff Bezos, can be summarized as follows “Work Hard, Have Fun, Make History.” It would be impossible to produce results in an environment as dynamic as the Internet without extraordinary people. According to Jeff, setting the bar high in Amazon.com’s approach to hiring has been, and will continue to be, the single most important element of their success. Probably, Amazon.com’s most important capability is their “knack” to sell over the internet and create an environment that facilitates even novice users of the web to very easily buy over the web. In essence, they have taken the first step to revolutionize the online buying experience for consumers. BARNES & NOBLE, INC. In 1996 Barnes & Noble became the largest bookstore chain in the world. From its fledgling beginning of one store in 1971 Barnes & Noble acquired and ran several mall based bookstore chains including B. Dalton Bookseller, Doubleday Book Shops and Scribner’s Bookstores. Ultimately they developed superstores, which carry a range of 60,000 to 175,000 titles. The superstores accounted for 85% of operating income by 1997. The Company reached $3 billion in sales in 1998, a 7.5% increase from 1997, which registered approximately $2.7 billion in sales. In addition to retail operations, Barnes & Noble maintained its catalog operation and its publishing business. In 1997, Barnes & Noble once again expanded its operations to make books available to customers through the Internet. The decision to go online was motivated by the desire to allow more consumers to connect to the expertise of Barnes & Noble, a company with an established reputation for knowing books and providing information and content in ways that are most convenient to the customer. Barnes & Noble became the exclusive bookseller on America Online’s (AOL’s) Marketplace in March of 1997 and launched its own site on the World Wide Web in May . The website, which is located at www.bn.com, is a leading online retailer of books and complementary information, entertainment and intellectual property-based products. Since opening its initial online store, bn.com has sold products to over 1.7 million customers in 181 countries. bn.com's online stores are anchored by its online bookstore but also include software, magazines, and music and video offerings. The bn.com website has the largest in-stock position of books and provides customers with not only discounts and fast delivery but also offers rich editorial content and a unique community experience. Barnes & Noble’s Resources Over its operating history Barnes & Noble has developed some reputable resources. The first, logically, is the Barnes & Noble brand name, which has superior brand recognition and serves as a strong motivating factor in attracting customers. Consumer perceptions are positive regarding Barnes & Noble stores and related offerings. The extensive experience in bookselling is also quite valuable. The Company has been operating for over 30 years and has established a culture, which breeds outgoing, helpful and knowledgeable booksellers. Finally, Barnes & Noble’s strong management provides the appropriate leadership and direction for the business. Barnes & Noble also maintains strong relationships that allow for cross-marketing, co-promotion and customer acquisition programs including AOL, MSN and Bertelsmann, a German media giant. For example, its relationship with Bertelsmann provides access to millions of established book buyers and an opportunity to directly promote its online store. This access is crucial to Barnes & Noble’s success since estimates provided by Euromonitor indicate that worldwide book sales are expected to grow to $93 billion by 2003. Demand for U.S. published books abroad is quite large and relatively untapped . In addition, Barnes & Noble has developed information technology related resources through systems that support store operations, merchandising and finance. For example, BookMaster, its inventory management system, utilizes a proprietary data-warehouse-based replenishment inventory management system that enhances communications and real-time access to the network of stores, distribution center and wholesalers. Barnes & Noble also maintains a database, which includes catalogued sales rankings of over 750,000 titles in over 150 subjects. The web site currently maintains a state of the art interactive e-commerce platform and the Company plans to continue to invest in improvements. Barnes & Noble’s Capabilities The resources combine to provide a number of capabilities on which Barnes & Noble can base a competitive advantage. Barnes & Noble has positioned itself to sustain growth and attractiveness to customers through dedicated brick and mortar expansion efforts and through its recent online development. The online venture creates synergies that may be shared. Using Barnes & Noble’s core knowledge and existing resources, the web site can offer diverse sales opportunities and allow customers ultimate flexibility in how they desire to buy merchandise. Additionally, Barnes & Noble has depth in their inventory and a capability to ensure quality of distribution. The Company has garnered strength in procurement and logistics. Both online and traditional businesses rely on a concentrated distribution center in New Jersey. The facility’s operations allow for “in-stock” titles to be shipped the same day that they are ordered which in many cases surpasses competitor delivery times. Other systems, like the extensive bookstore database were developed for the traditional business, but have been instrumental in the online business as well. This database can be searched electronically and can provide real-time queries for inventory checks with book suppliers as well as provide weekly updates to the B&N.com servers . Barnes & Noble’s Competitive Advantage Barnes & Noble appears to maintain several competitive advantages. First, the Barnes & Noble name has strong brand recognition. As the largest operator of book "super" stores in the United States and extensive bookselling experience, Barnes & Noble has established its name and presence. The Company leads book retailing with a "community store" concept that offers a comprehensive title base, a cafe, a children's section, a music department and ongoing events, including author appearances and children's activities. The title selection is diverse and reflects local interests. Barnes & Noble emphasizes books published by small and independent publishers and university presses. The tremendous selection, including many otherwise hard-to-find titles, builds customer loyalty. Through bn.com, Barnes & Noble actively serves customers via the Internet. The web site has been developed to extend the same extraordinary services. The Barnes & Noble name serves as a strong motivating factor in attracting customers, especially with regards to consumers who have yet to make an online purchase. With over 2 million Web sites, brands are going to matter more. In addition, the store design and ambiance has become somewhat of a trademark. They are designed to provide comfortable surroundings, which often include ample public space, reading chairs and even a cafe that features Starbucks Coffee. The stores also feature a children's section, a music department and ongoing events, including author appearances and children's activities. The physical stores have a reputation for offering convenience and personal service and now the web site compliments the stores by providing flexibility for customers without sacrificing expertise and service. The web site is designed to extend the ambiance and provide a familiar environment in which customers are willing to make purchases. Efforts are being made to continually expand the large selection of product offerings within its online stores and enhance the user experience, as well as increase delivery speed. A second advantage for Barnes & Noble is its core competency in operations. The infrastructure entails business know-how related to publishers and wholesalers and the appropriate information systems. Implementation of just-in-time replenishment of books has resulted in higher in-stock positions and the BookMaster system has yielded better productivity at the store level through efficiencies in receiving, cashiering and returns processing. Increased use of its distribution center enables Barnes & Noble to maximize available discounts and enhance its ability to create customized marketing programs with many of its vendors. It has also allowed for increased direct buying from publishers rather than wholesalers. Synergies are achieved by sharing the expertise. The online business has been able to leverage these existing “back end” operations and avert extraordinary start-up investment. The distribution network also provides a significant competitive advantage for B&N.com. By stocking nearly 750,000 titles, they are currently in a position to provide overnight delivery service to online customers at gross margins, which allow B&N.com to offer very deep discounts . Barnes & Noble’s Strategy The Company's strategy is to increase its share of the consumer book market, as well as to increase the size of the market. The operating strategy is focused on increasing its customer base and rapidly extending its brand. Maintaining proximity to customers i...