September 21, 2021

Media Decoder Blog: Barnes & Noble Reports Big Falloff in Nook Unit

Barnes Noble experienced a drop in revenue in all three of its major divisions – retail, college and Nook – for its fiscal third quarter, the company reported on Thursday morning. But the 26 percent falloff in the Nook segment, which includes digital tablets and e-readers, was particularly steep.

The company said earnings before interest, taxes, depreciation and amortization were $55 million for the quarter ended Jan. 26, compared with $150 million for the period a year earlier, while consolidated net losses were $6.1 million, compared with net earnings of $52 million.

Barnes Noble, the nation’s largest bookstore chain, had warned earlier in the month that Nook sales were disappointing, and executives had hinted that the company’s strategy of competing in the highly competitive tablet space had run its course.

“The Nook is not a failure, not technically,” said James McQuivey, an anaylst at Forrester Research. “If you go back two years and ask the Nook product managers how many Nooks they would want to sell by now, I bet they have blown past that number. The problem is not the Nook’s success or failure, it’s the fact that the overall tablet market has actually blown way past the Nook’s performance. This puts the Nook in a dim light at a time when the traditional retail business is already facing a cliff of its own.”

On Monday, Leonard Riggio, the company’s largest stockholder and the architect of the company’s ferocious and successful retail expansion in the 1980s and ’90s, announced he was considering buying Barnes Noble’s retail operation. Some analysts cheered this announcement because they felt the digital unit, meant to be the company’s savior, was in fact dragging down the worth of the retail stores, which for now remain a viable operation.

That notion got some support with the earnings report. The company said retail sales decreased more than 10 percent, largely because of store closings. But Barnes Noble had anticipated the lower revenue and, despite the sales decline, retail earnings increased 7.3 percent, to $212 million, “resulting from a higher sales mix of higher margin core products and expense management,” the company said.

Revenue in the Nook unit plunged by 26 percent, to $316 million for the quarter, compared with $426 million in the year-earlier period, while losses more than doubled, to $190 million, from $83 million. The losses were largely a result of lower-than-anticipated sales, inventory charges and higher operating expenses because of advertising costs, the company said.

One bright note was that digital content sales through the Nook unit increased 6.8 percent.

The company said that Nook was already implementing a cost reduction program.

“In terms of the Nook Media business, we’ve taken significant actions to begin to right size our cost structure in the Nook segment, while also taking a large markdown on Nook devices in order to enhance our ability to achieve our estimated sales plans in subsequent quarters,” William J. Lynch Jr., chief executive of Barnes Noble, said in a statement.

Still, Mr. Lynch emphasized that the company was not abandoning the Nook division or the digital devices.

“Nook Media has been financing itself since October of 2012 due to the strong investment partners we’ve been able to attract in Microsoft and Pearson,” he said. “Coming off the holiday shortfall, we’re in the process of making some adjustments to our strategy as we continue to pursue the exciting growth opportunities ahead for us in the consumer and digital education content markets.”

Article source: http://mediadecoder.blogs.nytimes.com/2013/02/28/barnes-noble-reports-big-falloff-in-nook-unit/?partner=rss&emc=rss

Conversations: Advice From a Sticky Web Site

Similarly, the top result in a recent search for orange soda was not a soft drink, but OrangeSoda, a company based in American Fork, Utah, that creates online marketing campaigns for small- and medium-size businesses. OrangeSoda, which was founded in 2006 by Jay Bean, has 175 employees and 6,000 customers. Mr. Bean said that the company’s revenue was $19 million in 2010, and that he expected it to reach $32 million this year. But not all of his ventures have been successful. In 2005, he started a retail business that failed, but helped him better understand the marketing needs of his small-business clients.

Mr. Bean, 43, recently talked about why he named his business OrangeSoda, what he learned from his unsuccessful retail venture and what small businesses don’t understand about search-engine optimization. He also discussed why he thought Groupon made a big mistake when it turned down a $6 billion offer from Google. A condensed version of the conversation follows.

Q. Why OrangeSoda?

A. It’s sticky and makes us stand out, which makes people more likely to talk about and link to us. Most companies in our industry use industry terms in their names. From a branding perspective, they’ve limited themselves. We’re building a national brand and our name helps us.

Q. Does it create any confusion?

A. Surprisingly few people come to our Web site looking for something to drink. “Orange soda” is a fairly generic term. Users have to qualify their searches, so if someone wants to buy orange soda in bulk, they’ll search for “orange soda bulk.” It all goes back to keywords.

Q. Still, aren’t you competing for Web presence not just with your industry competitors but with Coke?

A. We are. But our focus is on our industry. We give very little thought to what Coke or Pepsi might do to optimize their sites. And most of the time, we outrank the soft drink companies because the term “orange soda” is just one of thousands of terms they are trying to get ranked on, while it’s core to our brand.

Q. What were you doing before OrangeSoda?

A. I founded ah-ha.com, a search-engine marketing company that focused on small-business clients, in 1999. Marchex acquired ah-ha in 2003, and I was there until 2006. During that time, in 2005, I also started a company called Sunglasses Only. I had never sold anything myself and wanted to share the experiences of my small-business clients.

Q. How did Sunglasses Only do?

A. We closed in November 2010 and sold the assets at a loss. Initially, I planned an online business — I owned the domain name sunglassesonly.com. But I found the major brands require you to have a retail location to sell their glasses, much like car manufacturers. We didn’t want the traditional, 400-square-foot sunglass store. So we tried something different, selling 25 brands out of two stores that were closer to 15,000 square feet. We stocked 3,000 pairs of sunglasses. In 2008, the year we opened our second store, sales dipped 80 to 90 percent in one month during the recession. Business continued to suffer — sunglasses aren’t something you have to have. I’ve now got 300 pairs at my house. I’m selling most of them on eBay and to family and friends.

Q. What did the experience teach you about being a small-business owner?

A. My biggest lessons related to inventory. I had no experience with it as an online provider of services. Having inventory requires you to deal with a different set of complex issues, including theft control. I also didn’t consider that, if the typical 400-square-foot sunglass shop needs to get 30 people through the store every hour, I was going to need four times that amount.

Q. Why did you buy the domain name sunglassesonly.com?

A. I started buying domain names in 2000 and have two or three hundred. I don’t know why I buy them. I just do. But I don’t buy them to sell them — they’re expensive if you’re not doing anything with them. Mostly they’re ones I think I might use, or related to my interests. I like cars, so I own automobilecity.com. Some are just quirky, like groovyprices.com. I have no idea what I’ll do with that. None are particularly valuable.

The most expensive was OrangeSoda.com, which cost about $2,500. Someone else owns jaybean.com. So I have jayrbean.com. I own all my kids’ names. I don’t know what they’ll do in life, but they might need them. It costs me $9 a year to give them the option.

Q. What mistakes do you see small-business owners making on the Web?

A. One is that, because one-third of mobile searches have local intent, a small business that doesn’t consider mobile will miss the boat. More generally, business owners spend more time building their businesses, and less on what they don’t understand, like Internet marketing. Small businesses think they can do it alone, but they can’t.

Q. What can’t they do?

A. It depends on their skill set. But the problem is that there isn’t just one easy platform that allows business owners to easily create their own ads. There are dozens of advertising outlets on the Web — directories, search engines, social media — and you need to be using all of them. We create a system that allows business owners to manage these complexities across outlets.

Q. How are you different from all of the other S.E.O. gurus?

A. Most focus on national local. We do local local. For example, if a brand has 15 dealerships, we’ll do separate campaigns for each location, or at least break it down by region. Madison Avenue ad agencies and big S.E.O. agencies find it harder to run 100 different campaigns. But it’s necessary because search results focus locally. We focus locally all the way down to Sedalia, Miss. We’ll focus on Chelsea, not all of New York City.

Q. Why has your firm grown so much faster than other Web marketing firms?

A. Most firms try to work with bigger customers. But we built a platform specifically designed for local businesses with their smaller budgets. The trend is toward local advertising. But the Googles of the world don’t connect with small business. We’ve become the centerpoint in that connection process.

Q. How can a small-business owner tell if a Web marketer really knows what he’s doing?

A. The results will speak for themselves.

Q. Is Groupon, with its local focus, worthwhile for small businesses?

A. Businesses need to keep in mind that Groupon is just one thing and needs to be combined with other tools as part of a marketing campaign. A campaign should include, for example, a good Web site and strategies for search, mobile and social media. If you have all the basics covered, then you can benefit from Groupon by using it as a customer-acquisition tool.

Q. Do you think Groupon is worth its rumored initial public offering valuation of $25 billion?

A. No. They should have taken the $6 billion from Google when they had the chance.

Q. Why? What don’t they understand?

A. Groupon isn’t seeing very good supplier renewal rates. It’s not doing anything to keep those customers.

Article source: http://feeds.nytimes.com/click.phdo?i=ab042c1efe7a6cd88a54b2392b73033e

DealBook: British Bank Panel’s Report Less Drastic Than Feared

LONDON — British banks should hold more capital and better shield individual customers from losses in other parts of their business, a government-backed commission said Monday.

The proposals stopped short of any major new regulations, like requiring a full split of consumer deposit-taking, or retail banking, and investment banking, which some banks had feared.

Instead, the commission said retail units should be isolated for protection, or ring-fenced, to allow them to survive even if other parts of the banks needed to be wound down.

Shares in British banks were mixed in late trading in London on Monday, with Barclays and Royal Bank of Scotland rising and HSBC falling.

“The report has been extremely generous to the banks,” said Roger Nightingale, a strategic adviser to hedge funds and institutional investors in London.

The proposals, by the Independent Commission on Banking, go further than recent changes in the United States in trying to separate more clearly the traditional deposit-taking services from the riskier but more lucrative trading operations.

The commission also said larger banks, like Barclays, should hold at least 10 percent of equity related to risk-weighted assets, more than the 7 percent detailed in the so-called Basel III agreement to overhaul international bank regulation.

But the commission also said that because investment banks operate globally, British banks should not be subject to different capital rules than those agreed to internationally.

The proposed ring fencing of the retail business means that banks with both retail and investment banking units, including Barclays and Royal Bank of Scotland, would have to finance the two businesses separately and must not move capital from one area to the other.

The proposed changes would increase a bank’s financing costs, the commission said, but not as much as a complete split of retail and investment banking. And any costs would be more than offset by the benefit of “materially reducing the probability and impact of financial crises,” the report said.

Simon Gleeson, a partner at the law firm Clifford Chance in London, said the proposed changes could prompt banks to take on more rather than less risk, or to raise prices for retail customers as the cost of doing business increases. ‘‘All of this would make the operating of retail banks more expensive,’’ he said.

The proposals are part of an interim report and are not definitive. But they were seen as Britain’s most important response to the banking crisis, which has left two of the country’s largest banks in government hands. Before the release of the report, Barclays and HSBC had threatened to move their headquarters abroad should new rules be too punishing, which they argued would leave them at a disadvantage to rivals elsewhere.

John Vickers, who heads the commission, rejected claims that the commission bowed to bank pressures. “These are absolutely far-reaching reforms,” Mr. Vickers said at a news briefing in London. “They could be absolutely transformative.”

The commission, which includes former banking executives, was set up by the government in June to suggest ways to improve stability and competition in Britain’s banking industry following the financial crisis. The Treasury is expected to receive a final report in September.

George Osborne, the chancellor of the Exchequer, welcomed the interim report as a “very, very good piece of work.”

Under the proposals, any retail banking operations would have to be run as a subsidiary of the larger banking group. The subsidiary would have to stick to its own capital ratios but any capital above that could be moved from the retail banking business to other activities in the wider group. The banking group would also be able to continue selling financial products across its units, for example offering investment banking advice to retail banking clients.

“It would help shield U.K. retail activities from risks arising elsewhere within the bank or wider system,” the report said. “It could curtail taxpayer exposure and thereby sharpen commercial disciplines on risk taking.”

The commission said its recommendations sought a middle ground between the radical step of separating retail and investment banking and just relying on higher capital requirements to increase the stability of banks.

In the event of the collapse of a bank, the commission suggests that claims of depositors should be ranked higher than those of unsecured creditors. “It’s amazing how so many senior debt holders came out whole” from the banking crisis, Mr. Vickers said.

The commission also recommended making it easier and less expensive for customers to switch between British retail banks as a way to increase competition.

Article source: http://dealbook.nytimes.com/2011/04/11/british-bank-panels-report-less-radical-than-feared/?partner=rss&emc=rss