Is This the Beginning of the End for Barnes & Noble?

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We may be witnessing a classic story of a me-too brand that just couldn’t rise to the occasion. In a marketplace currently glutted with tablets, bookseller Barnes & Noble raised the “white flag, signaling that it cannot compete” with the likes of Amazon, Apple, and Samsung, reports The New York Times

Barnes & Noble CEO William J. Lynch, Jr. saw it a bit differently, telling analysts, “Our aim is to sell great tablets connected to our best content catalog and high-quality bookstore services we’ve done, but do so without the sizable upfront risk.” He added that “we are 100 percent not exiting the device business,” but note the use of the word “device.”

The fact is, B&N will no longer make its own Nook Color tablets, relying instead on other companies to license and manufacture them. The company does plan to continue to make its black-and-white eReader—but that’s largely being regarded as a defensive move. B&N will continue to sell Nook Color devices through the end of 2013 but then partners will begin producing them.[more]

The company posted a worse than expected loss of more than $118 million in the three months ending April 27, with Nook revenue plummeting 34 percent. The $18.3 million B&N wrote off as an “impairment charge” is “tantamount to an admission that the unprofitable Nook has ended up on the losing side of the e-book format war,” notes Businessweek. TechCrunch bluntly wrote, “The Nook is on life support.”

It’s a nasty fall for a retail bookseller whose problems are not restricted to the Nook division alone. Even when its arch-rival retail competitor Borders failed, Barnes & Noble had to continue to slog it out with online retailer Amazon. Despite a growing online division and hearty eBook sales, B&N saw a 10 percent drop in retail sales in the past quarter, and it has plans to close over a dozen B&N locations this year. Its only bright spot, it seems, is the college book business that showed an 11 percent revenue increase in the same quarter. B&N is the leading operator of campus college stores.

From a brand marketing and product perspective, B&N may have offered too little too late with the Nook. Last September, the company tried to broaden the Nook product line with HD and HD+ products designed to compete head-to-head with Amazon’s Kindle and Apple’s iPad. While the Nook often recieved better overall reviews than Amazon’s tablets, the Nook was restrictive to only Barnes & Noble’s content. Amazon’s strategy was to use the Kindle as an entry point into its vast world of e-commerce and digital media, which included not just eBooks but music and video. Apple, meanwhile, traded on the highly successful iPhone, with its thousands of applications, to spawn the iPad. Clearly, Nook could not gain traction fast enough against two such formidable competitors. And that was before Google, Samsung and other manufacturers muddied the waters by introducing their own low cost tablets.

As recently as last month, it looked like Microsoft, which has a minority interest in Nook along with the UK publisher Pearson, might make a bid for the Nook business. The latest news of Nook’s troubles could be an opportunity for Microsoft to swoop in and scoop up Nook Media at a bargain price—or maybe not. Microsoft, after all, is also trying to make its own mark in the tablet game.

Even as the book is closed on Nook, questions remain about the future of Barnes & Noble as a whole. An offer by the firm’s founder and chairman, Leonard Riggio, to buy its 675 stores and take B&N private remains on the table.

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