Barnes & Noble, Inc. (NYSE:BKS)
Investor Day to Discuss Long-Term Objectives Broker Conference Call
June 23, 2016, 09:00 AM ET
Andy Milevoj - VP, IR
Ron Boire - CEO
Jaime Carey - President Development & Restaurant Group
Mary Amicucci - Chief Merchandising Officer
Fred Argir - VP, Chief Digital Officer
Allen Lindstrom - CFO
Alex Fuhrman - Craig-Hallum Capital Group
John Tinker - Gabelli & Co.
David Abrams - Abrams Capital
Randy Baron - Pinnacle Associates
Eric Ward - Northern Right Capital
David Schick - Consumer Edge Research
Ladies and gentlemen, please welcome Vice President of Investor Relations Andy Milevoj.
Good morning, everyone and welcome to Barnes & Noble's 2016 Investor Day. I'm Andy Milevoj, head of Investor Relations for Barnes & Noble and I'd like to thank all of you for attending in person and via webcast. For those of you who are attending via webcast, I'd like to point your attention to the slides that we posted on our website today. They are available at www.BarnesandNobleInc.com and should be viewed in conjunction with today's presentation. Additionally, today's presentation will contain forward-looking statements. These statements include projections that are beliefs of management and that are covered under the Safe Harbor of our press release and SEC filings.
Today's agenda includes presentations by our CEO, Ron Boire, who will provide a strategic overview; Jaime Carey, our newly promoted President of Development in the Restaurant Group, who will discuss our new store concepts and our cafe initiatives; Mary Amicucci, our Chief Merchandising Officer, who will provide an overview of our merchandising initiatives; Fred Argir, our Chief Digital Officer, who will provide an update on our digital businesses; and Allen Lindstrom, our Chief Financial Officer who will provide a financial overview. Following Allen's presentation, there will be a Q&A session. We do ask, as a courtesy to those listening via webcast, that you wait for the microphone before asking your question. We also ask that you state your name and company affiliation as well.
With that, we'll begin the presentation with a brief video.
Ladies and gentlemen, please welcome Chief Executive Officer Ron Boire.
Thank you and good morning. It's great to have you all here and I've already received compliments. I'm actually wearing a tie today, so we're off to a great start. Barnes & Noble has accomplished a lot over the last 12 to 18 months including the acquisition of Microsoft and Pearson's stake in our NOOK, in the NOOK media business, which enabled us to spin off Barnes & Noble Education; the conversion of our Series J preferred shares to common shares; we initiated a $0.15 quarterly dividend and a $50 million share buyback program. We believe that all of these initiatives have created value for our shareholders.
Since joining Barnes & Noble in September of last year, the senior leadership team and I have focused on prioritizing and executing our strategic objectives. While we're working within the constraints of a fairly mature core industry, we believe there are many opportunities for improvement and growth in the core, and importantly new growth areas in stores and online driven by omnichannel and real estate. Over the course of today's presentations, we're going to discuss our strategy and key objectives and provide details on how we're going to execute against them. We'll begin with a look at the state of the book-selling industry. Based on various reporting, the U.S. consumer book market is about a $19 billion industry.
The industry has undergone significant transformation over the past five years, as we all know, as the digital book business grew from about $400 million in 2010 to about $3 billion in 2013, essentially at the expense of physical books. Since that time, e-book sales have plateaued and physical book sales have stabilized. As of today, we estimate the physical book sales account for about 85% of the overall U.S. book market, and our market share is approximately 20% in the physical space and 9% within the e-book market.
Most inspiring, while there is a lot of competition for people's leisure time, reading continues to be a prized activity with 72% of adults having read a book within the past year, and according to Pugh Research and even more encouraging, young adults between the ages of 18 and 29, who've grown up spending their leisure time in a social and streaming world, are even more likely to read than their elders, with 80% having read a book within the last 12 months. We think these trends bode extremely well for us. I believe there is also an emerging trend of returning to physical ownership and physical experience which I call digital blowback, in which people want to own and touch a physical object, whether it be a beautiful, artistic book cover or a great album jacket and a piece of vinyl.
This is also seen in the continuing strong growth of food services within the U.S. and the rebirth of downtowns and village centers across the country, where people increasingly are looking for that third place to gather and be part of a community. This all plays to our strength as a place where people can learn and grow and be part of a community, strengths that you will see we're building on with our strategic priorities. Barnes & Noble has 640 bookstores and a complete multichannel offering that provides tremendous reach. We serve 30 million customers including 6 million members in our paid loyalty program and 2 million NOOK users. BN.com also has extensive reach, driving 17 million unique monthly visitors to our site. This reach provides the Company with a great platform to create both traffic and conversion online and in our stores.
Two of the main components of Barnes & Noble's success have been the content and community-driven aspect of our business model. We sell over 1 million unique book titles annually. And with the warm ambience created by our cafes and the over 100,000 events held in our stores annually, Barnes & Noble is a true community center. Content and community are central to everything we do and one of the main threads throughout our conversation today. Barnes & Noble stores are the focal point in the communities where people of all ages come together to read, to think, to learn and to aspire and especially to discover. One of our key competitive differentiators beyond the massive selection we offer is the experience we provide. Customers come to Barnes & Noble to be entertained. Whether it is browsing through a book or magazine, attending an author signing, or one of our nationwide events such as our Relive the Magic of Harry Potter event which begins tomorrow, Barnes & Noble is a cultural hub in the communities we serve.
We believe this is why Barnes & Noble has a tremendous brand strength and a customer base unlike any other retailer. Looking at three independent measures, Barnes & Noble's customer satisfaction scores are very high. According to the latest American Customer Satisfaction Index, BN received a 79% satisfaction rating. We scored a 72% on the Nielsen brand equity index and our Net Promoter Score is a very enviable 61%. More importantly and beyond the measures of these scores, the most relevant measures are what customers say about us. Here are some quotes from our Twitter feed. I think the feed says it all. Some of my favorites here, I would give anything to be at Barnes & Noble right now.
Well, here you are. I have 4 books in my hands and haven't got past the second set of doors. I have $75 in Barnes & Noble gift cards; I don't think I've ever been happier. And, Walk into Barnes & Noble and they're playing @JamesBayMusic album. My fav place, my fav artist, life can't get more perfect than that. Not only do we have incredible relationships with our customers, we have a very desirable customer demographic. Barnes & Noble shoppers are skewing younger, with Millennials overindexing by 1.5 times, representing 37% of our customer base versus 25% of the U.S. population. Our customers are also highly educated, at 71% having a college education or higher; and higher education certainly equates to a higher income, with 44% of our customers earning an income greater than $75,000 per year. We also have a deep and experienced retail management team to lead this Company forward. I along with Fred, who will speak today and Bill Wood joined the Company over the last year, bringing decades of digital and retail experience to complement a team that collectively has over 128 years of book-selling experience.
Additionally, today we're announcing two executive appointments. Jaime Carey, who will be speaking next, currently Chief Operating Officer, has been promoted to President of Development in our Restaurant Group which underscores the importance of having a leader devoted to our new store concepts with a focus on enhanced restaurant experience and Mike Ladd has joined the Company as Vice President of Retail Store Operations. Collectively, this management team and I are focused on executing our four key objectives. They are number one, to significantly reduce NOOK losses; number two, grow bookstore and online sales; number three, reduce Retail SG&A by 100 to 200 basis points; and number four, grow our membership base to 80% of total revenue. Our first priority is to significantly improve NOOK's performance.
Last year we reduced NOOK expenses by $67 million and reduced their losses by $19 million to $65 million. Fred will discuss in further details the actions we're taking to improve NOOK results as well as the big opportunity we see at BN.com. I'm excited by the work we've done on the new store concepts and Jaime will provide a brief discussion on the new store plans and cafe merchandising initiatives. Mary is going to talk about the actions we're taking to drive core bookstore sales. And finally Al is going to provide an update on our expense reduction program and discuss our long term outlook. I'll now review our omnichannel and membership strategies which we'll utilize to better understand the BN customer and better serve them and grow our sales.
Barnes & Noble has always provided a rich multichannel offerings for our customers, including the ability to shop in our store, shop online or purchase a digital book for the device of your choosing. Customers can also shop online and pick up in-store or place an order from the store and have it shipped directly to their home. Our stores, website and NOOK are all important touch points that enable us to offer any book, anytime, anywhere, in any format. While Barnes & Noble has fulfilled the promise of any book, anytime, anywhere, we see an opportunity to better understand and serve our customers through an omnichannel view of the market. What that means is we simply have a more holistic view of the customer which will provide us with richer insights into our customer base and how we may better serve them.
Following the spin of BNED, we began to integrate NOOK with Retail which enhances our ability to have a more complete view of this customer. We truly need to better understand all of the touch points of our customers and the touch points they have with the brand and how they engage us so that we can serve them more effectively. Our membership program is the key to doing this. Membership is an important pillar to our growth strategy which helps connect all of these customer touch points, enables us to have a much more significant relationship with our customers. We believe the member program will be the major contributor to sales growth initiatives and our goal is to increase our member participation rate significantly.
In August, we'll be testing several new member program designs with the intent to increase participation rates and individual member spend. Our member program was well ahead of its time when it was introduced and continues to be a major success almost 16 years after its launch, despite minimal changes to the program in all these years. When the Company originally evaluated the prospects of launching a membership program in 2000, few believed the program could be successful with an annual fee. Barnes & Noble offered loyal customers a tremendous benefit and in turn believed its customers would see the value of becoming a member. The goal was to capture greater share of their wallet and enable us to bridge with some of the online versus in-store pricing dynamic. The program's success is due to its simplicity and the rich reward that it offers to members.
Members pay us $25 annually and receive a 40% discount on hardcover books which brings in-store pricing of books closer to online pricing. They also get 10% off on almost all other items within the store and online members receive free express shipping on BN.com orders. In turn, members are more likely to transact at Barnes & Noble due to the fee component. They too have an investment in the program. For these reasons it's not surprising the Barnes & Noble best customers are members. Today, we have over 6 million members in the program; and what's most encouraging is, despite the fact we have some net store closings over the last several years, our member program enrollment has continued to grow.
Two other data sets that highlight the value our customers find in the program are our enviable retention rate which is above 70% and actually very close to 75%; and, critically, members visit us twice as often as nonmembers and spend more than 2 times as much as nonmembers and actually close to 2.5 times. Clearly membership is working and driving our business and we believe there's a lot of room for growth in this program. Our goal is to utilize the member program to increase sales in the Company. We intend to accomplish this by accelerating the growth in our new member penetration and increasing member spend as a percent of total. This also includes increasing spend among our current members. We'll accomplish this by leveraging Barnes & Noble's unique assets to increase program appeal and loyalty. A major objective with the member program is also to track purchases and levels of engagement with the Company in order to develop better insights on our customers.
These insights include transactional and profile data that will inform our strategies, increase engagement and drive incremental sales and result in even higher retention rates. The customer profile data will enable us to fine-tune our member communications and be much more personalized in our communications to them. This summer we will pilot new programs that are designed to increase our customer participation and engagement with the brand. This test will include tiered reward levels. We're also going to consolidate programs by integrating our Kids' Club program which has an additional 3 million participants, into our core program. The new program will continue to provide rich rewards for our customers and be structured to incentivize additional traffic and incremental visits by establishing goals and encouraging and rewarding higher spending.
We'll grow participation rates by increasing these programs' awareness through our 28,000 booksellers and through email campaigns that reach 11.5 million customers. In conjunction with increasing our participation rates, we're utilizing new back-end systems that will enable us to better communicate with our members. We've upgraded our email and loyalty engine technology which allows for better marketing automation, personalization and lifestyle campaigns. These new platforms will enable us to perform better segmentation for various marketing channels, including BN.com email, direct mail push notifications and online display marketing. We're now in a position to integrate multichannel data sets that will provide us a more complete and comprehensive single view of the customer. All of these elements will enable us to communicate with customers in a much more targeted and localized level. Speaking of local, social media is another tool we're using to enhance communications with our customers.
Last year, we provided our stores with new tools to reach out to their local communities and launched individual Facebook, Instagram and Twitter accounts for each of our stores. This enables them to connect and communicate with their community on a local and personal basis on all the great events, signings, readings and other events occurring in their Barnes & Noble. We believe this is the most open and locally oriented social media strategy in all of retail. We allow each of our stores to directly communicate with their community with central support but without control of content and voice. Today, each of our stores has their own accounts and are posting about author appearances, new book releases, educator events and even those great CroMuffins that I watched your guys eat this morning.
At the heart of our omnichannel experience are Barnes & Noble's 640 bookstores which are located in the top real estate centers around the U.S.. Our stores are typically where customers' journey begin and are great places for community learning and discovery which cannot be replicated by an algorithm. As retail faces greater competition from e-commerce and digital alternatives, we will continue to make our stores more experiential and differentiated. Our stores as a destination and centers of the community is at our core. As Mary will discuss in her presentation, our bookstores are remarkable places for discovery. And in just a moment, Jaime will discuss the strength of our real estate portfolio and provide some insight as to our new concept stores.
To conclude, both the book-selling industry and our Company have undergone significant transformation over the past six years. We're competing in a mature industry that has recently stabilized. We have simplified the Company's structure to position us to be more focused and faster. We're focused on executing our four key objectives that will position us for success and are excited about the prospects for future growth within our existing store fleet, with new stores and in our e-commerce and digital businesses as we better understand and communicate with our customer base through an omnichannel structure.
In a moment I'll turn it over to Jaime and the other members our senior management team, who will discuss how they plan to accomplish other initiatives I've outlined; but before I do I'd like to take this opportunity to thank our shareholders for their support of this Company and also thank potential investors for the interest you've shown us. Thank you very much.
With that, Jaime Carey.
Well, good morning, everyone. Thank you very much for coming. I've been with the Company for 13 years in various roles including Chief Merchandising Officer and Chief Operating Officer and I'm excited to begin my new role as President of Development in the Restaurant Group. We're working on many exciting initiatives at Barnes & Noble and are excited about the opportunities that lie ahead, including our new store concepts. We can't wait to introduce customers to our new stores later this fall. I'll begin with an overview of our existing real estate profile and then I'll provide you with an update of our new store initiative.
One of the greatest contributors to our success has been our real estate portfolio. As is true for all retailers, it all begins with selecting the right location and Barnes & Noble has some of the best real estate locations across America. As Ron discussed earlier, Barnes & Noble tracks a highly sought-after demographic. Our customer base is well educated and affluent or as we like to think, rich of mind and rich of pocket. Developers like our bookstores because of the demographic we drive to their centers. This enables them to attract and maintain other high-end retailers as co-tenants who also seek this same customer. Today we're the only national bookstore operator for developers to look to, to deliver this demographic and we have a terrific real estate team with decades of book-selling experience led by David Deason, our Vice President of Development.
All of these contributors make Barnes & Noble a very desirable tenant. As a result of this positioning, we have a tremendous real estate portfolio characterized by the fact that 98% of our stores are cash flow positive on a four-wall basis. Our leases are relatively short in duration, with almost 500 leases up for renewal over the next four years, providing us with significant flexibility. When we sign renewals they have a typical renewal period of three to five years and many of our stores are in anchor locations that have co-tenancy clauses providing us beneficial terms. As a result of the improved sales trends that we've experienced over the last few years and the actions we're taking to increase traffic and conversion, we closed only eight stores last year. That's the fewest amount of store closures in 16 years. The improved trends are also informing our long term view of the business as we explore the opportunity to open new concept stores.
We're excited by the work we've done on our new store concept and can't wait to unveil our first new store in Eastchester, New York, at Vernon Hills this October. In total, we plan to test four new concept stores throughout the U.S. during fiscal 2017. In addition to Eastchester, we're going to open in Edina Galleria in Edina, Minnesota and at the Palladio in Folsom, California and at One Loudoun in Loudoun County, Virginia. These are all phenomenal retail locations and we're excited to be part of these developments. As we approached the design and development of our new store concepts, we focused our efforts on creating a store that will emphasize and expand Barnes & Noble's best attributes.
The new stores will first and foremost continue to be community spaces for customers to learn, discover and grow, where books remain the hero. We designed these stores with contemporary aesthetics and geared them for discovery. They will have increased customer seating areas to create a warm and welcoming ambience that only further reinforces the community center aspect of Barnes & Noble. The new stores will also feature a new mobile experience for both booksellers and customers that will improve the customer experience through a mobile app that will provide customers a digital layout of the store and enable them to locate books in their store. Booksellers will have assisted selling devices that will enable them to help customers from anywhere on the floor. Customers will also be able to text booksellers for assistance in our stores.
The cafes are also a major focus in the new stores. Now, this is an image for the first time we're publicly releasing; this is a partial rendering. This is the front of the new cafe. Since their introduction in the early 1990s, our cafes have always played a central role in creating that warm and welcoming ambience that invites customers to come and spend their leisurely time with us. This was a central theme for us as we thought about an enhanced Barnes & Noble experience. With these new stores we will introduce a significantly enhanced cafe. Our new cafes will feature a contemporary aesthetic, an expanded food and beverage offering including wine and beer and a major commitment to hospitality featuring table-side service.
We've partnered with the Branstetter Group and AvroKO. This is the other image we're going to show you today, this is the back of the cafe. You can't put the two of them together and understand the whole cafe. There's more to it and you'll have to come to Eastchester or any of the other locations to take a look. We partner with the Branstetter Group and AvroKO, leaders in the restaurant consulting business, to help us design the space and menu. The new cafes will be fairly larger than our current cafes and contribute to a larger percentages sales in these stores. The new food and beverage offerings along with a focus on hospitality will further reinforce Barnes & Noble as a destination and a place where people come to spend time and unwind. Where possible, we will also look for opportunities to introduce some of these new offerings within our existing cafes.
Let me conclude by saying that I'm honored to lead the development and Restaurant Group. All of us at Barnes & Noble are invigorated by the work on these new stores. When customers come to our new stores, they'll know it's a Barnes & Noble, but it will be through a new experience. Our goal was to develop a better bookstore, a bookstore that retained the familiar ambience of Barnes & Noble but that improved upon discovery, provided more public space for the community to enjoy, a new cafe with tableside service and an enhanced menu and most importantly, a new Barnes & Noble for the community to call their own. I hope all of you come and experience our Eastchester store in October.
Now I'll turn the presentation over to Mary, who will discuss our merchandising and marketing initiatives. Thank you.
Thank you, Jaime. Good morning. I'm Mary Amicucci, Chief Merchandising Officer of the Company. I'm responsible for the product portfolio and strategic planning of all merchandising initiatives. As Ron highlighted earlier, Barnes & Noble's customer satisfaction scores are very high and we're always looking for opportunities to improve how we serve our customers. Today, I will share with you how we're planning to drive traffic to our stores and increase conversion. Customers come to us for many reasons and one of the most important is the ability to browse our extensive selection of books.
To illustrate how extensive our selection of books is, best-selling books, an important component of our merchandise offering, represents only 4% to 6% of Barnes & Noble store sales. Barnes & Noble is one of the few brick-and-mortar locations where customers can physically browse and discover a deep selection of backlist books. The backlist books we make available to our customers are also very important to our publishing partners, who support our efforts with co-op advertising fees and showroom allowances. Our publishing partners know the customer's ability to discover a backlist book in Barnes & Noble stores amplifies the reach of that book in the market.
In addition to our extensive selection of books, our single greatest differentiator when it comes to discovery is our 28,000 booksellers. Our dedicated booksellers are there to support our customers and provide recommendations for their next great read that, as Ron stated, we strongly believe cannot be replicated by any algorithm. In addition to being a destination for discovery, we drive store traffic by making Barnes & Noble a destination for entertainment. With over 100,000 events held in our stores annually, Barnes & Noble gives our customers the opportunity to meet their favorite author, have hands-on learning experiences, meet a maker community, have fun with the very best of pop culture and join in lively discussion groups with people who share similar interests.
These one-of-a-kind events are a key differentiator for us in providing experiences that engage our customers and they cannot be replicated online. Bringing it back to the tremendous brand strength Ron highlighted earlier, these events provide a unique experience for our customers and foster the affinity our customers have towards Barnes & Noble. As we look for opportunities to grow store sales, our merchandising initiatives are built around our core differentiators, massive selection and fantastic experience. These initiatives are, improving store navigation and discoverability; utilizing Barnes & Noble's programs to highlight notable books; increasing local focus within each community; and driving traffic through store events. Books are our core business and improving our customer shopping experience and our adult trade book business will create the largest opportunity to improve conversion.
Discovery, after all, is at the core of what makes our store experience successful. We plan to improve the customer experience and adult trade with a more logical and intuitive organization, accompanied by updated signage that assists customers in navigating the subjects they browse. For example, exhausted parents in desperate need of a book to help them help their newborn sleep would have to search every corner of our family and child care section to find what they were looking for. Today, these same exhausted parents can easily find what they need in our newly created parenting, infant and toddler sleep section; and, while there these parents will discover books they may be interested in, such as baby food and baby signing. By creating a more natural transition from category to category, we help our customers find more of the content they are looking for which will ultimately lead to higher sales through improved conversion.
While there were several categories of books that performed well last year, a few were standouts and in fiscal 2017 we will continue to focus on these categories. These include coloring books and artist supplies, graphic novels and manga and young reader aged books. Coloring books and artist supplies were significant contributors to our sales last year and we're planning for their continued growth this year. Coloring is a trend that first took flight in March 2015 and our customers are continuing to look to Barnes & Noble to fulfill their artistic needs with our wide selection of coloring books.
With a curated assortment of artist supplies that serve various illustration styles, our customers are able to get the complete creative experience at Barnes & Noble. In fiscal 2017, we will continue to drive sales of coloring books and artist supplies with expanded assortments, local and national events and an introduction of other creative activities such as illustration, chalk drawing and journaling. Barnes & Noble has also achieved growth in graphic novels and manga over the last 10 years. To meet the growing demand of fans of all ages, we doubled the space allocated to graphic novels and manga last year.
We increased our selection of new releases, kept backlist books on the shelves longer and highlighted series and characters through eye-catching signage on our bookshelves. In addition, we reorganized our books for easier browsing and discovery and added a permanent promotional space to feature top picks. These changes propelled the growth of graphic novels and manga. In fiscal 2017, we plan to further grow this business through additional increases in assortment choices and compelling promotions. Our young reader subjects is another area that is key to our success. This customer demographic, kids ages eight through 12, cannot be undervalued. Our number-two subject sales driver in the Company, second only to adult trade fiction, our young leaders are active readers and they are growing in number. These readers truly epitomize the lifetime value proposition of a Barnes & Noble customer, from cradle to grave.
Nurturing a love of reading in kids this age will keep them coming to our stores when they are teens, young adults, parents and grandparents. Our merchandising strategies in this subject are focused on increasing its footprint in our stores through expanded promotional space where new releases, trending genres, exciting series and favorite authors are highlighted. In addition to helping customers find the specific books they are looking for, we help our customers discover and purchase books they did not know existed. We do this in a number of ways, most notably through special book programs supported by the full weight of our marketing efforts across all channels. This year, we launched a new program called Books We're Talking About which introduces our customers to books our booksellers are passionate about.
The program's inaugural book, The Nest, launched with great success. The number-one selling debut fiction book of the year, Barnes & Noble was the number-one retailer of The Nest in its first week of sales and that includes preorders. To date, books featured in this program are performing well and our market share on these books is well above our average market share. Another success has been our signed editions program which we created and launched two years ago. This program gives our customers a unique gift-giving experience by connecting readers to authors through signed copies of favorite books, something only Barnes & Noble could do. With the support of our authors and publishing partners, this program has been a huge success, with over 1 million books signed and sold by more than 200 acclaimed authors.
Finally, our Discover Great New Writers program brings the best and the brightest new and emerging talent to readers. Throughout its rich 25-year history, this program has connected readers with books that are special, surprising and a little off the beaten path, in other words books our customers might otherwise miss if not for the sheer passion and enthusiasm of the booksellers who read for the program. This program has helped many emerging authors find their audience and millions of readers discover what would become of well-known authors such as Gillian Flynn and Cheryl Strayed as well as books that captivated readers around the world, including Girl on the Train and City on Fire. While this program is important to Barnes & Noble and to our customers, we would like to take this moment and let you hear directly from the authors.
Book sales represent two-thirds of our business and they are complemented by other departments where we have driven growth. We will continue to drive sales in these departments this fiscal year. The first of these departments is music. Who knew two years ago we'd be talking about a growing music business? Well, today we're, thanks to the vinyl revival at Barnes & Noble. Music sales at Barnes & Noble represent almost 2% of total store sales and the music and DVD department represents 6% of sales.
Sales of vinyl records drove our music business to positive comps two years in a row and we expect music to drive significant growth again this year. We will achieve this growth through a thoughtful expansion of our assortment and through exclusive early releases, first-to-market opportunities and signed editions from favorite artists. As our vinyl record sales have grown, we have driven sales of turntables and speakers in kind which will continue to grow in fiscal 2017. We can't talk about growing businesses at Barnes & Noble without talking about our toys and games department. Our toys and games business represents 7% of store sales today.
Our toys and games department features the world's best selection of educational toys and games and provides another great opportunity for an experiential visit that differentiates Barnes & Noble from its competitors, hands-on learning events which are to toys and games what our storytime events are to kids' books. These hands-on learning events are fun, engaging activities that foster critical thinking skills and are designed to promote cognitive development, literacy, creativity, social skills and scientific thinking. In fiscal 2017, we plan to fulfill our educational promise of STEAM which stands for science, technology, engineering, art and design and math, by adding a new art fixture and a new science fixture in our toys and games stores.
Also at 7% of store sales is our gift department which saw significant growth last year in the artist supplies category as a result of the coloring book trend. This year we will continue to grow this business with the introduction of a For the Artist shop in 200 stores. These shops will provide our customers with the very best selection of artist supplies, including the best mediums for coloring, illustration, chalk drawing, painting, cartooning and journaling. Also featured in the shop will be a fantastic selection of books our customers will be able to test those new mediums on. Barnes & Noble stores have always been at the center of the local communities we serve and in fiscal 2017 we go hyper-local with a re-merchandising strategy in 50 stores where we will tailor the merchandise layout and assortment based on local customer demand.
In addition, store managers will be the key traffic driver in these stores by increasing their community outreach to build relationships with businesses, schools and local organizations. This local focus will achieve two objectives in the store it is executed in. First, it will greatly improve our customers' experience through better store organization, better assortment strategies and events all reflecting the community's interests. Second, it will unleash the power of the store manager as the center of the community. We firmly believe customizing the store organization and merchandise assortment for individual markets will drive sales through improved conversion. Another great example of where store managers will increase their community outreach is with our educator program.
With over 3.5 million educators in the United States today, Barnes & Noble is positioned to drive sales in this customer segment, with the world's largest selection of books for educators and with classroom tools such as workbooks and study aids for students. Our educator program offers teachers a 20% discount for all classroom materials and it reaches directly into the heart of communities by honoring educators for their tremendous efforts in creating tomorrow's future leaders through our Educator Appreciation Days. Barnes & Noble also has an extensive book fair program which provides fundraising opportunities for schools and nonprofit arts and literacy organizations in communities.
This program invites schools to fund-raise through our stores and earn a percentage of sales back for their schools. It also provides an excellent way for schools to build classroom libraries. Another key traffic driver for us is our large-scale nationwide event. Two years ago, as the physical book market stabilized and e-books plateaued, we seized the opportunity to increase store traffic with nationwide events. The first of these was Get Pop Cultured with Barnes & Noble. It took place in all of our stores over the course of three weeks during the summer. Attendance at the events were strong, reaching up to 100,000 customers for our Frozen Friday event alone. Get Pop Cultured with Barnes & Noble is now an annual summer celebration.
Last year, in addition to hosting the second annual Get Pop Cultured events, we introduced our customers to the first-ever retail Mini Maker Faire. Literacy is at the core of what we do and hosting a retail Mini Maker Faire displayed our commitment to what we believe it means to be literate in the 21st century. Our Mini Maker Faire featured over 1,000 makers in almost every Barnes & Noble store, providing hands-on learning events over a three-day period that featured crafts, coding, programming and 3D printing activities geared towards all age groups. The Faire aligned well with our expanding merchandise assortment in areas such as tech literacy and do-it-yourself. The Mini Maker Faire partnership continues this year, as does Barnes & Noble's commitment to tech literacy. In fiscal 2017 we introduce two new reading events we're excited about.
The first was B-Fest, Barnes & Noble's first-ever teen book festival and the largest national teen book festival in the United States. B-Fest drew over 20,000 teens interested in being in the know, being creative and generally being part of the fun with events, activities and giveaways featured nationally in our stores June 10 through June 12. B-Fest brought Barnes & Noble the largest author appearances in the history of the Company with over 1800 authors coming to our stores to engage their fans. Sales in teen books for the weekend were strong, with a significant swing in comp performance during the event.
The second event is our Barnes & Noble Summer Reading Triathlon. Barnes & Noble has always been the destination for summer reading and this year we turned it up a notch in celebration of our 20th anniversary and the Summer Olympics. This summer, young readers will make free book by telling Barnes & Noble which books made them read the most, read the fastest, read the longest. Young readers will have fun this summer engaging in the competition when they choose their favorite heroes and places in books to win the gold, silver, and bronze medals. In just two weeks, over 10,000 young readers have voted and Harry Potter and the Hogwarts School of Witchcraft and Wizardry are in the lead -- which brings us to Harry Potter.
As you can see by our young readers' enthusiasm, the books in this series are still on our young readers' bestseller list. And now we have another Harry Potter book to look forward to. Harry Potter and the Cursed Child is already a hit with our customers, with significant preorders and store reservations. With each Harry Potter new release, Barnes & Noble was the destination for kids of all ages to experience the magical wizarding world and we will be the destination again with this eighth story. We begin our celebration early, with our first Harry Potter events happening in all stores nationwide tomorrow night. Customers will relive the magic of Harry Potter and can enter to win for a chance to win a set of seven limited-edition book cover prints available only at Barnes & Noble.
Please join us and experience the magic of the story that changed the way the world thought about books for young readers. As you can see, we're focused on an array of initiatives to drive traffic and increase conversion through each of our merchandising initiatives. We're confident we will drive sales by executing on these initiatives to improve store navigation and discovery and by further integrating Barnes & Noble into the communities we serve.
And now I'll turn it over to Fred to discuss Barnes & Noble's digital businesses.
Good morning. My name is Fred Argir; I'm the Chief Digital Officer for Barnes & Noble. BarnesandNoble.com represents an incredible opportunity for growth in our business. As most of you know, we launched the new site last year, on June 30 of last year. We've had a fair amount of opportunities and challenges with the site. Subsequent to the launch, we've completed 2,200 fixes to address those opportunities. Additionally, we been focused on new opportunities for on-site search and optimizing the on-site experience in terms of the journey, the hunt, the search and the opportunities for a better digital experience.
We've also been focused on the complement of omnichannel. You've heard a lot of folks here talk about omnichannel. It's really critical to our business. We've been working with new functionality, new opportunities to expose the online/offline omnichannel complement. We're focused on a fair amount of mobile refresh opportunities, tablet refresh opportunities and we're redesigning the entire front end of the site for holiday season. Now, mobile is an incredible driver of the e-commerce business, of course; but there are several channels that we're focused on in terms of digital. On the desktop side, the desktop experience will focus on discovery, browsing, account administration and content consumption.
On the tablet side, we'll deliver a simplified version of the desktop site, but we'll work at maximizing and optimizing the space of the physical device with an optimized digital experience. On the mobile side, we will focus on the experience of quick purchase, of store location, price comparison and mobile optimized pages for email. In our app business we'll focus on membership engagement, content delivery and in-store experience activation. Now a little bit on the BN.com improvement. We're focused on streamlining the entire e-commerce experience, thoughtful architecture of the entire digital ecosystem and correct points of connectivity for the journey. We'll also be working with deep content in providing a deep content experience and improved product discovery.
On the mobile side we'll be looking at the optimization of the mobile experience. With the different sizes of mobile devices these days, it's important for us to maximize the real estate and optimize the experience per device, commerce with deep connectivity to the app ecosystem, fast purchases, store locations and account administration. On the tablet side, again, critical to maximize the tablet experience. Simple path to purchase, store discovery order and account management and maximizing a deep content ecosystem. On the app side, we'll be focusing on consolidating a portfolio of applications that are in the marketplace and really focusing on the best portions of those apps for a better customer experience, a streamlined app that will reduce friction and foster mobile commerce; effective commerce connectivity and rich content delivery; and an integrated customer experience, again, across all the ecosystems.
Now, we're going to do a redesign. I want to give you a sneak peek of what we're looking at to launch for holiday season. These are very significant changes to the design and the ecosystem of our digital experience, so I'm going to give you a brief preview of our homepage and our product page. On the homepage we're going to drive customers to the most important elements that are on the page. We're going to have a more elegant product presentation, reduce the visual noise of the page and create an appropriate hierarchy so it's easier to shop, so the journey is more fostered by the ease of accessing the content that you're looking for.
On the product page we're going to streamline the product page with reduced clutter. We're going to navigate the customers to elements that are most important to them and we're going to enable customers to better digest and consume information. Recent mobile apps, some of the functions that we've added or are in the process are adding are save-it-for-later capabilities; shopping cart sync between the website and the app experiences; barcode scan to direct product page access; and wish list capabilities across the ecosystems. Now, NOOK is an incredibly important component of our omnichannel strategy, offering any book, anytime, anywhere and in any format. As Ron talked about, it's our number-one strategic priority to reduce NOOK expenses, so I'll share with you some of the efforts the team has done this year.
First and foremost, cost reduction. We've exited the gaming app business; we've exited the video business; and we've exited the UK businesses. Secondly, we've entered into an agreement with BCT or Bahwan CyberTek, I'll talk a little bit more about that in a minute -- to outsource certain functions of the back-end of our business so we can reduce expenses. And we've begun to shutdown the Santa Clara offices as well as the Taipei offices. Now, beyond the cost reduction we're also focused on growth of the business. In the growth of the business we're reinventing the NOOK Press function, but we're thrilled and excited to report that we're also adding the print-on-demand functionality into the NOOK Press product. We're also looking at ways to increase our opportunities to engage with our customers through the sale of audiobooks.
On the device side, we will be releasing a new Samsung device this year. And we're also exploring additional partnerships to continually hone the opportunities to connect with our customers with optimized device experiences. A little bit more into the cost reduction. With the exit of the apps business, the video business and the UK businesses, total savings is $4 million. We closed the digital stores on March 15 of this year. The video business has been transferred to CinemaNow as well as Disney and the UK business was transferred to Sainsbury's.
With the Bahwan CyberTek agreement, that's provided us the opportunity to outsource that back-end piece of our system, significantly reducing our SG&A component, but also gives us a partner which we continue to develop new software to continue to enhance the customer experience for our NOOK ecosystems. In closing California and the Taipei offices, we've been pleased with some of our folks from the NOOK side of the business being re-banded over to the BCT team. The annual cash savings of closing those offices is $13 million. Now with respect to growth, I talked a little bit about NOOK Press. NOOK Press is a self-author tool. We've re-platformed that NOOK Press ecosystem. It's the author tool kit that's been re-created and the re-architecture of the entire experience.
The print-on-demand function is something that is now inclusive to the NOOK Press opportunity. We have been piloting that; we've been in beta since March and I'm pleased to announce that next week on June 28 we'll actually be launching the brand-new NOOK Press solution. And again, looking at ways to continually optimize our audiobooks opportunity, whether it's the linkage and the leverage of dot-com with NOOK in audiobooks or just looking at specific additional strategies that we'll be coming out with more later in 2016. On the device side, as I mentioned, we will be launching a new device this year, a new Samsung device. Feature devices, always looking at opportunities to find better devices, to have a better ecosystem and a better reading experience.
On the legacy devices, looking at ways to have existing customers graduate from older devices to newer devices and have a richer experience in our ecosystem. And on existing devices, looking for continued opportunities to consolidate our ecosystem so that we can not only reduce our SG&A component but we can also optimize the experiences for our customers.
With that, I'll turn it over to Al.
Good morning, everyone. Thanks for joining us today. I'm Allen Lindstrom, CFO of the Company. I will begin with a brief review of our fiscal 2016 results which we reported last night and provide you with the projected financial outlook for fiscal 2017 and beyond. Let's start with our Q4 results. Fourth quarter sales declined $33 million, primarily on e-commerce and NOOK declines as well as store closures. Comps declined 0.8% for the quarter on softer trends, consistent with the consumer slowdown that many other retailers experienced this spring. Fourth quarter consolidated EBITDA declined $45 million. Retail EBITDA declined $44 million which includes the previously disclosed $21 million pension settlement charge.
Excluding this charge, Retail generated EBITDA of $10 million during the quarter, a decline of $23 million versus the prior year primarily on lower sales, increased promotional activity, higher store wages and employee benefit costs. Fourth quarter NOOK EBITDA losses were $15 million which included approximately $4 million of expenses incurred to further rationalize the cost structure of the business going forward. These expenses included transitional costs to outsource certain technology functions, consulting fees, Retail integration costs and expenses to exit the UK, apps and video businesses. Excluding these items, NOOK's losses were consistent with the third quarter.
Now let's look at fiscal 2016 as a whole. For the full year, total sales declined $133 million, primarily on e-commerce and NOOK sales declines as well as store closures. Total comparable store sales were flat, in line with our guidance. Core comps increased 0.4%, slightly below our forecast on softer fourth quarter sales. Consolidated EBITDA declined $83 million for the year. Embedded in this number is an improvement of $19 million in NOOK EBITDA as cost rationalization outpaced sales declines. Retail EBITDA declined $103 million, including the $21 million pension settlement charge, as well as $10 million in severance charges related to the College spin and $4 million in publishing contract impairment. The balance of the decrease was primarily attributable to lower sales, increased advertising, higher store wages and expense deleverage.
E-commerce results were also impacted by cost to stabilize the site, increase traffic and improve the overall user experience. As we look ahead to fiscal 2017, our management team is keenly focused on our four strategic objectives we have outlined today, reducing NOOK losses; increasing both online and bookstore sales; growing our membership program; and reducing Retail costs which I'll discuss in a moment. We believe the execution of these initiatives will position the Company to improve performance, increase EBITDA and drive shareholder value. Given the timing of the rollout of many of these initiatives, we expect them to have an impact in the back half of fiscal 2017, annualizing to additional benefits in the following years. In fiscal 2017, we expect comparable-store sales to be between flat to an increase of 1%.
Retail EBITDA is expected to be within a range of $240 million to $280 million. This forecast excludes any potential charges resulting from the implementation of cost-reduction initiatives. NOOK is expected to reduce its losses to a range of $30 million to $40 million, inclusive of transitional costs. Consolidated EBITDA is expected to be between $200 million and $250 million. We expect to open four stores and close 12 in fiscal 2017. Now let's take a look at how we plan to do this. As Ron discussed earlier, we're encouraged by the improved industry trends over the past few years, in which e-book growth has plateaued and physical book sales have improved. These trends, coupled with the merchandising and marketing initiatives, have enabled us to move from a decline of 5.8% in fiscal 2014 to a flat comp in fiscal 2016.
In fiscal 2017, comp sales are expected to be between flat to an increase of 1%. In terms of trajectory, we expect comps to remain soft earlier in the year, given the current retail environment and improve in the back half of the year due to the initiatives we discussed. Similarly, we expect e-commerce sales to improve gradually throughout the year as the initiatives Fred highlighted are rolled out. Now I'd like to turn to our cost-reduction initiatives. Over the past several years our retail costs have been pressured by sales deleverage, competitive wage increases, higher benefits and e-commerce investments. This has led to an increase in SG&A costs of 200 basis points, excluding this year's charges, since 2014. One of our key initiatives is to reduce Retail SG&A by 100 to 200 basis points over the next two years.
Together with Accenture, we have been working diligently over the past three months to identify opportunities and develop plans to achieve our objectives. Our plans to reduce SG&A include increasing labor productivity in our stores. Store payroll is our biggest expense, where modest efficiencies can have a material impact on our bottom line. We're evaluating our home office organizational design, utilizing both top-down benchmarks and bottoms-up optional assessments to inform areas of opportunity. Our new CIO, Bill Wood, is transforming our IT structure, migrating to a process-driven flat organization by outsourcing certain functions while retaining in-house expertise for core competencies.
Finally, we're performing a detailed evaluation of what we call the prime value chain, essentially the full order-to-cash cycle. This is expected to result in cost reductions via supply chain efficiencies, system enhancements and process improvements. In total, we expect to reduce Retail SG&A by approximately 50 to 75 basis points in fiscal 2017, subject to the timing and rollout of our initiatives. In terms of timing, we expect SG&A rate pressures to continue in the first half of this year on softer sales and upfront investments, including upfront costs with Accenture, our website initiatives and the launch of our new membership program. As we execute these plans, savings are expected to be realized in the back half of the fiscal year and annualized thereafter. How does this impact EBITDA? The natural trend line of our business indicates further EBITDA erosion on continued expense deleverage.
However, we believe that by successfully implementing the initiatives outlined today we can improve Retail trends. As such, we're forecasting fiscal 2017 Retail EBITDA to be in a range between $240 million to $280 million. Now I'll talk to you about the outlook for the NOOK business which I know is a focus for many of you. As Ron and Fred discussed, NOOK is an important component of our omnichannel strategy to offer any book, anytime, anywhere and in any format. At the same time we're firmly committed to reducing NOOK's drag on our profitability. Over the past few years, the Company has continued to make significant progress in reducing NOOK's losses despite significant sales declines.
We accomplished this by rationalizing NOOK's cost structure and by entering into the Samsung partnership. The acquisition of Microsoft and Pearson's interest not only simplified our capital structure, it also eliminated our commitments to support underperforming businesses. More recently we took additional actions, including exiting our apps and video businesses as well as the exit of the UK e-book market. Additionally, we partnered with BCT to outsource certain NOOK functions and as a result are closing our Santa Clara and Taiwan offices. The BCT transition is expected to result in annualized cash savings of approximately $13 million which includes approximately $8 million of expense and $5 million of CapEx. In the first quarter of fiscal 2017, the Company expects to record severance charges and incur transitional related costs within NOOK of approximately $6 million.
Given these recent actions, coupled with annualizing fiscal 2016 cost rationalization efforts, we expect fiscal 2017 NOOK losses to fall within a range of $30 million to $40 million which includes the impact of the BCT transition. But as we get beyond fiscal 2017, we expect annualization of these actions coupled with continued cost rationalization efforts to further reduce NOOK losses to approximately $10 million in fiscal 2018. Now let's talk about the longer term outlook, as we expect many of the initiatives outlined today to yield benefits beyond fiscal 2017. The first bar on this slide shows fiscal 2016 EBITDA, as reported, as well as the impact of the items we discussed for an apples-to-apples comparison to future periods. The second bar shows our consolidated EBITDA projection for fiscal 2017.
Over the next few years we expect benefits from the core four strategic objectives as follows, as just noted on our previous slide, reduced NOOK losses over time; our SG&A reduction plan; membership program enhancements; and sales growth via e-commerce initiatives, new stores and comp sales improvements. We expect achievement of our strategic objectives to yield consolidated EBITDA in the range of $270 million to $310 million by fiscal 2020. This assumes additional comparable sales growth in the low single digits and modest new store growth, offset by additional closures. Turning to CapEx guidance, in fiscal 2017 we expect to invest approximately $100 million in our business, compared to $95 million in fiscal 2016. This includes investments to support new stores, improve our cafe experience, as well as investing in membership, merchandising and website initiatives. Approximately 60% of our capital spend is geared toward growth initiatives, while 40% will be allocated towards maintenance.
Now let me spend a moment on capital allocation. In fiscal 2016, we strengthened our balance sheet and simplified our capital structure. We also returned significant cash to shareholders via the initiation of a quarterly dividend which today yields approximately 5% and our $50 million buyback program. Combined, we returned $73 million to our shareholders in fiscal 2016. Looking ahead on capital allocation, we will look to increase shareholder value by investing in our business where we expect appropriate returns, maintaining flexibility to run the business and through our dividend policy and stock buyback authorization. In conclusion, our financial goals are directly linked to the achievement of our strategic objectives. Our management team is focused on growing book store and online sales, reducing Retail and NOOK expenses and growing our membership program. By executing these initiatives, we expect to grow EBITDA and increase shareholder value over the long term.
And now the management team will join me to open the meeting for any shareholder questions.
Great. We're just going to take a brief moment right now to set the stage for the presenters today for the Q&A session. Just as a reminder, for anyone interested in asking a question, we do ask that you wait for the microphone to be passed to you, complementary to those listening via webcast. In addition to that we ask that you state your name as well as your company affiliation.
And for our guests from the media, we ask that you refrain from asking questions during this investor session. Thank you. With that, we will begin in just a moment. Okay, great. We're ready to begin.
I'm Alex Fuhrman with Craig-Hallum Capital Group. I wanted to ask a little about the guidance for next year. Seems like a pretty tight range of comp store sales expectation, flat to up 1%, but a much wider range of EBITDA guidance.
Can you walk us through a little bit of the thinking between what's really the difference between the high end and the low end of the guidance? Is the high end to low end of the sales guidance the big part of that difference or is it really more the timing of how quickly you expect to realize some of the SG&A savings and perhaps the impact of some duplicate costs and restructuring as you go through that?
So, Alex, it's the latter of what you just said. A lot of it revolves around the timing of when we execute our strategic initiatives. Also, remember not in our comp guidance is e-commerce; so in there we expect improvements in the back half of the year.
Quick question about the new store concept, certainly looks like the cafe is going to be a big focus of that. Is the plan to still have most of those new cafes cobranded as Starbucks, kind of like we see in a lot of your existing cafes? Or is the plan to kind of evolve that perhaps into a more Barnes & Noble specific branding?
I'll jump and then Jaime can correct me. We will still sell the same kind of coffee assortment that we sell today. We brand our cafes today as Proudly Serving Starbucks, right? So they're Barnes & Noble cafes and we serve Starbucks coffee. We'll continue to do that, but the big change in the cafe and what I'm very excited about is the extension of the daypart and the really enhanced food and beverage experience. While we'll still have, I think, an excellent and probably an improved morning daypart and a new daypart around what you'd expect to be a traditional cafe experience with us, the extended daypart and the extended service and experience is to me the most exciting part of it. I don't know if you want to add to that.
No, I mean, I agree with that. I think they are Barnes & Noble cafes serving Starbucks coffee. I think the difference will be there is going to be so much more to the cafe experience that the Barnes & Noble part of it I think will feel larger.
John Tinker, Gabelli. Could you just talk a little bit about your balance sheet in terms of -- given you have a buyback program and you have CapEx, are you looking to keep net cash on the balance sheet or net debt?
I'll start at a high level and Al can go into the detail again. Today we have an authorized buyback. We have a dividend program. Clearly the forecast you saw today, as Al said, was for modest new store growth. We're launching three of these stores before holiday. They are clearly differentiated from the market and differentiated from what we do today.
We'll launch them beginning October and they will all be in flight by end of October, early November which gives you a short holiday read. So immediately post-holiday, we're going to be looking at those stores; and from my perspective, if we're getting a proper capital return which we define as 20% or better ROI in these stores, we see that as a really big opportunity to drive shareholder value. Al, I don't know if you want to add additional color.
The only thing I would really add to that, because Ron touched on a lot of it, is if you’ve noticed our balance sheet, year-over-year balance sheet, we've improved our working capital quite a bit. You saw inventory come down quite a bit in the fourth quarter of this fiscal year as we incurred some promotional markdowns and returned some products to clear some space to get more productive inventory in our stores and eliminate nonproductive inventory assortments. So I think our balance sheet is a lot healthier than it's been and we've done a lot over the last couple years to really clean it up.
David Abrams, Abrams Capital. To the extent you're willing, I'd love to hear a little bit more about what you're thinking in terms of the cafe experience expanded in the food and beverage.
Yes, I'm very willing, but I'm constrained. Certainly you saw some of the sketches; you can see we're dedicating more real estate relative to the total, certainly relative to the store in absolute terms in the cafe. We've brought AvroKO in and the Branstetter Group. Vic Branstetter was the cofounder of Houston's and Hillstone's and we brought in, we think, a truly talented executive chef to work on the menu. We think of it as all day shareable, I'll use the phrase American cafe-style food. We're adding wine and beer to the assortment, and the reaction among people we've discussed that with and others has been very, very positive to the idea of that. Imagine the book club experience with a glass of wine and some fine shareable food in the cafe. So quality is certainly markedly different in terms of the full-day menu without losing the great coffee experience in the morning. In fact, I think even enhancing it. So I'm really excited about it. Eastchester is a great space. Some of you have looked through the window in Eastchester and called us up and said, hey, we know you're going there, tell us about it, but the space is beautiful, including outdoor seating, things like a fire pit and bocce court, just a great community space. So I would encourage you to come on down from Boston and have lunch with us. We're going to have a full price promotion for all of our shareholders when we open the store. So I think you're really going to be very pleasantly surprised with the quality that we're bringing forward. This new chef that we've engaged, Vic, AvroKO, really, really talented people that have launched really good what I would call American cafe-style restaurants. I've said a lot, so I didn't leave you much.
You did and I agree with everything you said. Look, we said it's going to be a larger footprint than in our existing cafes and it's going to be a larger mix of our sales. So clearly the new cafe is going to be important to the success of the new store concept. We believe, besides the fact that we're going to do well in the cafe itself, we believe it will be a traffic driver to the stores. And we believe it's really perfect for us in terms of doubling down on our core competencies, part of which is community. So these are going to be great community cafes. So I think that's--
Yes and it's a great harmonic to a core competency. A question people have asked is, What about supply chain? It's like, well, we have 588 restaurants today. We know how to keep them clean, we know how to get product to them. It's really about the creativity around the new menu and a new experience. We're really excited about it.
What do you see as the opportunity with the existing store base, if you're happy with the cafes, to modify them to incorporate that?
Yes, maybe more than two. The two I think of the most is, number one, we have just a terrific portfolio. As Jaime said, we have the ability to touch a really big chunk of that portfolio. I spent last week, the entire week, with Jaime and Dave Deason, our head of real estate going -- we hit I don't how many stores last week, 15 or 18 stores and all the new locations again last week. The properties we're in are truly great properties with I think favorable lease and renewal terms. We have developers that are really interested to the extent we've shared this concept, very excited about this concept.
I think there is one opportunity in the in-place or in-property remodel, relo capability. And then there's the back feed of what we learn in terms of food and dayparts and what can be pushed back into the cafe which is more your question. So we think a lot of the ideas around the food component can be pushed back upstream. But we want to do that and a smart, thoughtful way, because the plant is going to be different. You have to have -- some of the food you need different venting, you need different production equipment, whether it be a combi or whatever the ovens may be. So it's a little bit different kind of production experience, but certainly there is going to be learnings.
We spent time in some other retailers that are starting to serve wine, as an example, wine and beer. What we don't want to do is take a bottle of wine and put it on the shelf. I think we've seen some people do that and my opinion is that's not an experience; it's a glass of wine. It's like, okay; I don't know what that's going to do to my evening business if it looks like a coffee shop and you've got a glass of wine. On the other hand, there's people that have done it and done it very, very well in a retro experience and that's what we'd aim for.
Randy Baron from Pinnacle Associates, I have two thematic questions. The first is just running with that Eastchester concept. You talked about building a better bookstore, but we've drilled a lot into the restaurant. I wonder in the context of Amazon and the new store, the physical store they're building which has gotten a lot of press, if you could talk about the bookstore part of it, if there's something that can be done. And then the second question is about NOOK. You talked about exiting apps and all the things you're doing to cut costs. Are there some contractual reasons that you can't just exit the business entirely? Because it seems to me a pretty easy way to hit that 2020 EBITDA goal would not be to have this drag. Thank you.
Let's talk about core book first. We talked a lot about restaurant because that's the biggest change, I think, in terms of emphasis. The book change will be, I think, pretty material, more open space, more seating. We were talking this morning about we came here yesterday for a walk-through and all the kids sitting in the aisles out here in the manga section. The idea would be to have more open space, more seating, more community space. It will be, I think, fresher, brighter. We certainly will be, I think without equivocation, the broadest assortment of books in the market.
So we're not going away from being very authoritative in terms of our book assortment. It will be a truly great bookstore. The mix will still be circa 60% books in terms of revenue. Books are the soul of the Company and they are what is the core of what differentiates us, that book experience. So in terms of absolute assortment, it's multiples of what you're seeing in other places; and in terms of experience, much I think newer, fresher. More seating, more community, even more community-friendly than what you have in a typical Barnes & Noble. Mary and I guess Jaime can talk more about that. Actually, Fred, you can talk about some of the omnichannel stuff that we're doing in the store, too.
I just want to add an emphasis to what Ron said which is on the point of discovery. When we thought about these stores, sure, we wanted a contemporary aesthetic. We wanted lots of chairs, tables, places for people to sit, hang out -- together, alone, however they would enjoy the space. But we also wanted to make sure that -- because we think one of the -- really the great experiences inside a Barnes & Noble is the ability to come in and discover a book that you hadn't thought about. So we wanted to make sure these stores double down on that experience. I think when you walk in you're going to see a lot more tables in a sense of curated experiences. So that you can go, oh, this is interesting. So I think that experience is going to be very exciting for our customers. You may want to talk a little bit about your ideas behind that.
Sure. I think as we talked today about improving navigation and discovery, opening up the new store gives us a chance to start that from scratch. We talked a bit today about category navigation, right? Making it easier for customers to discover what they are looking for within a category. The store will be able to -- actually make them easier to discover what they're looking for across categories, so massive fiction genre.
Today you may not find fiction and romance and mystery together in our stores; in the new store you will. All of our education subjects will actually be together versus where you see them today, dispersed in certain areas. So we're really categorizing things together in a way that we think will help customers discover what they're looking for and improve the conversion as a result of that. So we're really excited. And then to Jaime's point, there will be as a percentage of the store just more promotions as a percentage of the store, so customers will be able to discover books featured on a beautiful center area of promotional tables. We're excited about it.
Yes and to translate, promotion means feature, like these big table presentations. It doesn't necessarily mean a big markdown.
You want to talk about omnichannel, some of the stuff you guys are--
Sure, we all know people use their cellphones when they're inside the store. The idea was, how can we bring the online experience to the offline experience? So one of the things we'll be launching here for fall is a mobile application that will allow folks to walk in; they will be geo-located, so we'll know what store they're in. They have a wish list. It will populate a store map. So it would be a store-specific digital map people will have on their phone. If you're like me, you want to do a search and find out -- at least get me close to where the book is that I'm looking to buy. You'll be able to do that look-up on the app. So on mobile, on a mobile device, store-specific digital maps tied to a wish list, if you wish, that will populate a pin of where your books are in the store. And you can use that as a guiding tool while you're shopping inside our stores.
We'll also have digital assists for associates, so they'll have tablets on the floor to be able to complete transactions. And we'll have single sign-on.
We'll have single sign-in and we'll also have the ability for texting. So folks will be able to use their phone to text in-store staff for assistance.
Or give feedback on the store. I think David had another question.
Well, there was a NOOK question.
Well, in terms of the NOOK losses, you can see we've taken out of quite a bit of SG&A over the last few years to rationalize that business. We do feel it's an important part of our strategy to offer any book, anytime, anywhere and in any format. What folks have to realize is we do have a substantial piece of NOOK customers that also shop been our stores. So you don't want to do anything that compromises the experience of someone on NOOK that would potentially have an impact on your Retail bookstores as well.
I think your question was more around stranded cost as well.
The EBITDA of $30 million, $40 million cost that goes to NOOK, is that how we should think about, if they didn't exist, the cost that would be at the Retail bookstores? Is that an apples-to-apples thought? It strikes me as large, that's why.
Yes. Well, we aren't breaking out specifically what the impact would be on the Retail side if something like that occurred. But you can certainly see that we've taken those costs down so to minimize the investment that we're doing on that end. Remember, that $30 million to $40 million also includes transitional costs earlier in the year which is important to know if you're looking at our trend line in how we've taken the losses down over time, especially what you're going to be seeing in the first half of the year as opposed to the back half of the year and then into fiscal 2018.
So first of all, thank you for hosting this event and giving us an opportunity to hear from the assembled leaders today, maybe two just follow-up questions on the new store format. First being, is the physical footprint of that format expected -- well, I guess how does it compare to the existing average footprint? Then secondly, with the increased use of technology for both the customers and the booksellers, does that allow you to potentially increase labor productivity within that new format?
Yes, so total footprint will be down circa 20%, 25% versus a typical store today. So still a pretty substantial bookstore with a pretty substantial book assortment. I would think about it as highly optimized versus what we have today. You think about distribution of sales, it's obvious how you can optimize that. And certainly there are labor productivity enhancements that can come because of technology. We talked about the tablets on the floor and there are going to be other things in the store that allow customer to walk up and self-serve if a book is not on the floor which I think will enhance productivity.
The goal of the store, first and foremost, is to be a better community and book experience. We think that drives revenue and drives margin because of the experience. Certainly having a smaller footprint will drive asset productivity both in terms of the buildout, in terms of the inventory that goes into it and finally with technology we think there are some labor productivity improvements.
Eric Ward with Northern Right Capital, I just want to go back to the question of NOOK. I think maybe what would help is a little bit of clarification. As you look at 2017 and 2018, can you give us a sense of the revenue level and the OpEx spend level that you guys are anticipating in the guidance for EBITDA?
Yes. We aren't breaking out those two individual pieces, but we can tell you is -- that there aren't aggressive growth in revenues or even -- there aren't aggressive assumptions in there on any reversal of revenue. There isn't anything in there that's aggressive in terms of the revenue side. It's all about the SG&A reductions and how quickly you can do them without disrupting the business.
On the CapEx, I think if I recall correctly, it's $100 million total, 60% for growth and 40% for maintenance. So first on the growth part, how much is roughly for -- a little color -- how much is for new stores? And give a little breakdown as to where the 60% is going, number one. And then number two, on the 40% on the maintenance, is it anything other than store refurbishment? And if so, you can give a little color on that.
Okay. So on the 60%, I can tell you that it includes, as we said on the last earnings call, that new stores for us are about $2 million to build a new store which is net of tenant allowances. So you have -- we announced four openings in there. The gross cost that would go to CapEx is a little bit higher than that, because the tenant allowances go in the lease accounting world. So that's a piece of the 60%. We've also put in here merchandising initiatives. Mary talked about the 50-store test. There is CapEx associated with that in order to retrofit 50 of our stores in order to get comps, optimize comps.
Cafe experience, there's developmental costs that go into that number that are a material impact to that. Fred outlined some of the e-commerce initiatives we talked about and some of the redesign and mobile experience. So those are the big chunks really of the $60 million. There is not one that's overwhelming. They all add up to the $60 million.
So there's not one that's more than half or anything like that. In terms of the 40%, you're right. Most of it's existing store maintenance, given the age of our fleet. Also what goes into that maintenance number is IT systems which we have at the home office which are continually refreshing and trying to keep up.
David Schick from Consumer Edge Research. Talk about your -- the comp's been firming and it's part of what you see going forward. Could you talk about the traffic, ticket and conversion and anything around mix? You've outlined different initiatives, but that how all that boils down to traffic, ticket and conversion in your thinking over the next couple of years for the bookstore business.
Yes, we certainly think about -- I mean the way I think about it on a high level is ticket should continue to grow at, call it, roughly inflation; what you've seen in the book industry. Transactions have been relatively flat across the industry. The traffic drivers for us are around -- we talked a lot about membership today. It is our biggest asset. Our members are by far our most profitable customers really enhancing that program and building a frequency component, a rewards component into membership is a big driver of traffic, as well as the overall experience.
So we're doing some -- so there's not only just a contact strategy within membership, but there is a layered reward strategy. And then within that we'll be testing some, I think, really interesting incentives using our cafe and other assets that we have that other retailers don't have to drive incremental traffic which I think will be really interesting.
The macro strategy really is about continuing to improve the store experience. That's a big part of what we're talking about today. I think when you guys see Eastchester you'll be impressed with the feel of the store, the warmth of the store and the community aspects of that. And obviously, the cafe side is also not just a margin play but it's a frequency play.
We have a question up front.
Just two questions, you gave us a good sizing on the gifts, the toys and games and the art component of the revenue stream. Could you give us a sense for what the cafe and food experience today is as a part of the revenue base?
Yes, you want to talk to current state?
To current state in terms of cafe?
In current state in terms of cafe sales, it's a little bit less than 10% of our sales. Obviously, with an expanded footprint we would expect that to increase.
And the other question, in your mind, as you look out to that fiscal 2020 projection of EBITDA, you explained that if the new stores, Ron, are successful, you'd like to invest more in them. Is achieving that plan -- could you give us a sense of how conditioned it is on success in the new stores and what from a capital structure perspective flexibility you think remains while you try to achieve that fiscal 2020 goal?
As currently construed, it's modestly dependent on the new stores. I think we said that we'll be relatively neutral on new stores versus closures in this plan. Now that's without seeing what the stores do. So we're all optimistic about it, but we haven't plugged them into the plan. We didn't want to create some kind of hockey-stick that would be too -- may have too much volatility. We'd rather run the play for six months, see how the stores are doing and then modify the plan based on that, incrementally. As far as capital flexibility, I would think that the current plan has got good flexibility. It's not aggressive on use of capital for new stores or any particular initiative. I think we're pretty comfortable. I'll let Al speak to that.
Yes, I agree with that. We were conservative in our assumptions, I think, in the guidance when it comes to new store growth. A lot of it depends on the execution of the current year initiatives and when they annualize.
Yes. One of the things that -- I mean the CapEx question came up, but a piece of CapEx this year is the beginning of the development of really improved merchandising and inventory systems. We've got a big inventory number on the balance sheet and making that number more efficient is a material goal of the teams. So inventory efficiency in the out-years of the mid-range and into the five-year plan is a big opportunity for us. Another question back here.
In the 2020, $270 million to $310 million EBITDA consolidated forecast, what loss or contribution are you assuming comes from NOOK at that point in time?
You want to talk to that?
It's consistent with our 2018 guidance; a little bit better.
Okay. So for the foreseeable future you don't see this business generating positive cash flow. I hear your concern that you're worried about the impact of closing it down on that customer base. But is there a way to reward them, take the present value of your future losses and give them a gift card to the bookstore? And then you guys can focus on positive cash flow producing efforts.
I think the way to think about that is we have 2 million very active customers in the NOOK business that are also Barnes & Noble customers. So to me it's like cutting off your leg to lose weight which I may have thought about at one point or another but it's probably not the most productive use. Now we're -- it's not like we just sit here and go, well, can we keep tweaking it, tweaking this? We're thinking about different strategies for NOOK that could be less capital-intensive, partnership strategies, etcetera.
What we know today is what's reflected in the plan and we're going to keep working to improve NOOK and how it's positioned within the Company and the economic results of that. We don't feel like walking away from it in its current state or what we project it as is accretive. So we're going to certainly work to approve that through partnership and other strategies; but walking away is not in the mindset today.
We have a question up here.
[Indiscernible] at GE Capital, coloring books and related supplies, you guys have done a really great job of riding that wave. You've mentioned it as a tailwind a number of times now. Can you give us a sense for how big of a tailwind that has been and what you expect for the coming year?
Do you want to talk to that, Mary?
Yes. It's been a big tailwind. It's been a big tailwind for us and the industry and I think it's going to continue. We're planning in fiscal 2017 for it to continue. I think the key that Barnes & Noble is going to do is, rather than wait for the trend to die, we're starting to introduce, as I mentioned earlier, our customers to new mediums. Because we think it started with coloring, but really it became a form of creative expression. So our goal is to keep introducing them to some other kinds of mediums that they would like to partake in, through illustration and journaling and those kinds of things. So we're going to keep driving the sales trend of that through not just coloring but other related creative activities.
And Michael had a question.
How should we look at BN.com in the 2020 numbers? Is it just getting back to where it was? Was it starting to grow like a real dot-com or online business? And two, the four new stores, are they are identical? Or what is the tweak between them that you're testing?
We don't have any identical stores. We -- just broadly on the stores, then we'll go to Al and Fred on e-commerce. We take the best available -- I mean, obviously we can't have the Rubik's Cube for a store, right? But each one of them has slightly different real estate with the fundamental bulk space that we need to be dominant and well organized in the book business; but they may have different flows to them. Frankly, all of them have really interesting additional spaces. I talked about the outdoor space on Eastchester. I am a huge fan of outdoor spaces and what it can mean to a total experience. But each one of them has little unique spaces. It's one of Len's things. Len, one of his geniuses was building these castles, these beautiful facades of these beautiful stores, that when you pull up to a Barnes & Noble you know you're in front of something important. We certainly maintain that and we try to bring even more of that inside the store.
I would say they're a fundamentally similar concept. We're pushing and shoving on different department sizes, but this is a concept we like a lot. And we're building four of them to run the play. Then the question on dot-com?
With respect to dot-com we've unfortunately had to spend the last year reacting to the launch of a site, as we've talked about, Michael. With that said, we've missed out on some opportunities which is what we're going to be focused on. We have three or four years of just strategic initiatives, thinking about expanding the single sign-in opportunities, leveraging mobile as a digital complement, closing the gap between online and in-store experiences. Even on the design, the look and feel of the site, the look and feel of the site has been the same way it's been for years.
With the launch of the new site, we never did anything on the front-end, so this year massive change and overhaul. I can see we'll be doing that for the next couple years as well. So big changes in terms of the entire experience of the dot-com piece and I think we're going to see we've got enough stacked up that will see us get through 2020 and beyond.
Is it back to where we were or you're expecting an accelerated growth rate from, say, two years ago?
The guidance for this year is essentially to get back what we lost; and beyond that, it's to get back to a growth rate, because if you remember dot-com in our business had been declining for several years.
But I would just say from experience perspective, far beyond where we were.
Okay, we have our next question from John here.
Given that you're already highlighting the members and how key that will be to your future profitability, why do 25% of people not renew?
I think you get a lot of first years that maybe go through it one time; maybe they made a big transaction. I was talking to Julia just yesterday or the day before. As you get into year two and year three, renewal rates are extremely high. So I think a lot of our churn, like a lot of subscription-type programs are first-year churn. Long term satisfaction with the program is very high.
Any other questions in the group? Okay, with no other questions, that will conclude today's meeting. Again, we want to thank everybody for attending in person and via webcast and thank you for your support in the Company.
Yes. Thanks, everyone.
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