Am I Next? Barnes & Nobel Booksellers - Mass Layoffs and Restructuring

According to published reports, bookseller Barnes & Noble is laying off hundreds of people nationwide including some of its most dedicated and experienced workers as part of its new “flexible staffing plan. According to a B&N press release, “Barnes & Noble implemented a company-wide expense reduction plan. This plan includes a new store labor model that provides greater flexibility and better customer service by eliminating tasks and allowing booksellers to focus more on customers. The Company estimates that these actions will result in annual cost savings of approximately $40 million.”  

The company has implemented a restructuring program following a disappointing holiday season (down 6% from the year before). Barnes & Noble CEO, Demos Parneros, wrote “We have initiated a strategic turnaround plan that is centered on growing the business and enhancing shareholder value. In the short term, we are focused on stabilizing sales, improving productivity and reducing expenses. Achievement of our longer-term goals requires a significant multi-year transformation. We expect our plan to provide consistent improvement beginning in fiscal 2019 and beyond.” 

Is the Business Model Doomed?

The major best sellers are heavily-discounted by the big-box stores such as Walmart, Costco, and the "infinite bookstore" can provide hard-copy books within a few days, and their electronic version within a few seconds. Carrying auxiliary merchandise such as stationery, pens, and tchotchkes only produce incremental profits. Enhancing the environment with snack bars and reading areas may encourage customers to linger -- but they probably will not increase their buy to compensate for the expense.

The company’s last quarterly filing with the Securities and Exchange Commission (SEC) provides this “business overview” filled with corporate-speak and management’s dreams.

Barnes & Noble has been experiencing declining sales trends primarily due to lower store traffic. The Company has been able to offset some of the traffic declines through its efforts to increase conversion through higher customer engagement. Additionally, the Company has been able to mitigate the impact of the sales declines on profit levels through cost reductions. While the Company believes it has lost share on its recent sales performance, it sees opportunities in an industry that has become more stable. 

To improve its performance, the Company has initiated a strategic turnaround plan. The Company’s long-term strategic plan is focused on strengthening the core business by enhancing the customer value proposition; improving profitability through an aggressive expense management program, which will be used to fund growth initiatives; accelerating execution through simplification; and innovating for the future, which will position the Company for long-term growth. 

To strengthen its core business, the Company is enhancing this customer value proposition by improving its merchandise mix, enhancing the overall shopping experience, increasing the value of its Membership program and improving its omnichannel capabilities. The Company will leverage the strength of its Barnes & Noble brand, knowledgeable booksellers, vast book selection and retail footprint to attract customers to its omnichannel offerings and grow sales. 

Merchandising initiatives are focused on increasing the number of value offers, narrowing product assortments, improving SKU productivity, improving inventory management processes, testing changes to existing store layouts and remerchandising select business units in stores. The Company believes there is an opportunity to increase conversion through higher customer engagement and by improving navigation and discovery throughout the store, including a customer friendly and more intuitive organization of books and improved signage for easier browsing within and across sections.     

In-store events also drive traffic, reinforcing Barnes & Noble as a community center where customers can meet, browse and discover. The Company is also utilizing social media, where booksellers communicate events, promotions, and new product offerings with customers at the local level. 

The Company’s Member Program provides the Company with valuable data and insights into its customer base, enabling the Company to better understand and market to its customers. Members are more productive than non-members, as they spend more and visit more often. The Company continues to test programs to grow sales to both members and non-members, increase membership, improve price perception and enhance its overall customer value proposition. 

To improve profitability and accelerate execution, the Company is focused on simplification throughout its organization to create efficiencies and reinvest resources to support sales growth. The Company is also committed to right-sizing its cost structure. At B&N Retail, the Company is focused on increasing store and supply chain productivity, streamlining operations and eliminating non-productive spend. At NOOK, the Company exited non-core businesses and outsourced certain functions. NOOK expects to continue to re-calibrate its cost structure commensurate with sales, further reducing its losses. 

In addition to initiatives focused on growing sales through its existing store base, the Company is innovating for the future and is currently testing new bookstore formats, which it believes could foster sales growth in the future. The Company has also created a Test & Learn pipeline process, through which it is testing a number of new initiatives to improve future performance. 

Are you asking yourself, Am I Next?


Am I Next? Upside-Down Business Models, Competition, Predatory Pricing

Efficiency not competition is often the biggest existential threat to companies with an upside-down business model.

The fight for business is about to get incredibly ugly as companies with upside-down business models realize a fundamental fact: efficiencies available to customers reduce the company's revenues, not the company's operating costs. 

Thus in a rush to preserve the income-generating ability of legacy capital assets, you will find companies turning to corrupt politicians to preserve whatever is left of their business and to overlook the confusing and dishonest predatory pricing that is often found in highly-regulated and tariffed industries.

Deception becomes the norm. 

One example can be found at Sparkletts where the initial offer of a free cooler (regular and cold water) has given way to an almost surreptitious rental cost to the customer. In the beginning, the company raised the price to $1 per month and explained it as imputed taxes demanded by "the government." Now, years later, the same cooler is costing the consumers $6 per month, and there is no pretense that this is a government-mandated tax. The same with the strangely-calculated "energy fees" to compensate for higher gasoline costs, but which never seem to shrink as the cost of fuel dramatically decline in an age of declining oil prices. Anything to overcome the fact that water has been commoditized, brands are becoming increasingly irrelevant, and lower-cost options are now becoming more available. 

Of course, just looking at the fees on some utility bills is almost an exercise in futility. Southern California Edison, when challenged over a single line item claimed that the item was a charge in anticipation of higher costs and was not a government-imposed fee.  One such mysterious fee is labeled the "Competition Transition Charge" and is defined as "a non-bypassable charge applicable to all existing and future SCE Bundled Service Customers, all Direct Access Customers, and all Departing Load Customers for recovery of SCE’s transition costs." 

In a second document, here is how the charge is explained...

"Once again, additional generation charges are listed in a column on the right underneath the extra delivery charges. Our example shows only a competition transition charge."

"Below this are your overall energy charges, which also boil down to a single item, franchise fees. The fees and the competition transition charge are just a reflection of the cost of business for your utility. By buying electricity from a utility, you are paying for all maintenance, repairs, special programs, and incentives, not to mention salaries and pensions. When any of those costs go up the utility just spreads the cost across its many thousands of clients, resulting in increased rates."

One might think that the utilities' costs would be bundled into the total cost of energy, but apparently, to avoid scaring the customer with a big number, they break the bill into smaller numbers, each when taken individually does not seem so onerous as the one big number.
So what does this have to do with real competition? Very little since most utilities are operated as monopolies and where the customer is faced with Hobson's choice: Pay the fee, accept the rules or do without. Pretty tough when you are speaking about the hard delivery of water or electricity. Not so much when you have choices of telephone or cable providers. 

it appears that home solar panels, LED lighting, and the increased efficiency of new buildings is taking a cut of their revenues without altering the cost structure. Some of this loss of income can be counterbalanced by the avoidance of CAPEX (Capital Expenditure) in building out additional capacity. You can see the very same thing happening in the water markets where drought-resistant landscaping and drip watering systems are reducing water usage and ultimately revenues. In these instances, efficiency is more damaging than the competition, if there is any in a monopolistic business.

So it is not uncommon to penalize customers for this efficiency with artificial tier-rates. The utility calculates, on some basis, what it believes is the efficient use of its resource and surcharges any overages. Unfortunately, most utilities do not make their revenue and operational statistics available to the public in a usable form so that we can know how much revenue is generated by so-called inefficient use. In some cases, utilities who have long-touted solar power are surcharging customers for administrative costs in attaching their solar installation to the grid. 

The takeaway ...

The takeaway is to look out for upside-down business models based on legacy assets and a revenue base that is being eroded by technological efficiencies on the consumer side like LED lighting and DRIP watering systems. Because the easiest way to compensate for declining revenues -- at least in the short term -- is to automate and to reduce costly personnel.


Am I Next? Fear: The New "Old" Business Model

There have always been charlatans and hucksters selling their newsletters and investment predictions on the basis of an upcoming catastrophe. Using alarmism to rise above the background noise of omnipresent and to command your attention with unconventional advertising. My favorite format is the informational video that always uses a shocking headline indicating an impending financial collapse or medical breakthroughs that are available to readers of a particular and costly newsletter. The best of which appears to be products from the multi-millionaire newsletter guru Porter Stansberry of Stansberry Research.

Some of my favorites include “12-Term Congressman Ron Paul's Warning to Americans about the Coming Currency Crisis” and the Stansberry’s 2010 “End of America” video. Many featuring headlines from reputable news organizations and scientific institutions that were cherry-picked to support the main story theme. Many taken out of context and using events with an extremely low probability of occurring in your life.

And, then there is NASA with its newsletter, “Climate Change: Vital Signs of the Planet" to sell the "scientific consensus" on global climate change. Of course, the consensus is a political process, not a valid scientific method.

But, we are now seeing the rise of the mainstream marketing of products and services that exaggerate the impact of global climate change, the presidency of Donald Trump, and the failure of our healthcare system to sell everything from prepper-approved supplies to insurance policies.

Think about it carefully, you are visiting this website because you are worried and asking the question, “Am I Next?”.

Bottom line: fear could be our future