Barnes & Noble, Inc. (Barnes & Noble or the Company), the nation’s largest bookseller1, as of January 31, 2009 operated 778 bookstores and a website. Of the 778 bookstores, 726 operate primarily under the Barnes & Noble Booksellers trade name (35 of which were opened during the 52 weeks ended January 31, 2009 (fiscal 2008)) and 52 operate primarily under the B. Dalton Bookseller trade name. Barnes & Noble conducts the online part of its business through barnesandnoble.com llc (Barnes & Noble.com). Through Sterling Publishing Co., Inc. (Sterling or Sterling Publishing), the Company is a leading general trade book publisher. Additionally, as of January 31, 2009, the Company owned an approximate 74% interest in Calendar Club, an operator of seasonal kiosks. The Company subsequently sold its interest in Calendar Club in February 2009. The Company employed approximately 37,000 full- and part-time employees as of January 31, 2009.
The Company’s principal business is the sale of trade books (generally hardcover and paperback consumer titles, excluding educational textbooks and specialized religious titles), mass market paperbacks (such as mystery, romance, science fiction and other popular fiction), children’s books, bargain books, magazines, gift, café products and services, music and movies direct to customers. These collectively account for substantially all of the Company’s sales. During fiscal 2008, the Company’s share of the consumer book market was approximately 16.2%. Bestsellers (the “top ten” highest selling hardcover fiction and hardcover non-fiction) typically represent between 3% and 5% of Barnes & Noble sales.
The Company’s fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of January. Fiscal 2008 ended January 31, 2009 and was comprised of 52 weeks. The fiscal year ended February 2, 2008 (fiscal 2007) was comprised of 52 weeks.
The Company was incorporated in Delaware in 1986.
Barnes & Noble is the nation’s largest operator of bookstores1 with 726 Barnes & Noble stores located in all 50 states and the District of Columbia as of January 31, 2009. With over 40 years of bookselling experience, management has a strong sense of customers’ changing needs and the Company leads book retailing with a “community store” concept. Barnes & Noble’s typical store offers a comprehensive title base, a café, a children’s section, a music/DVD department, a magazine section and a calendar of ongoing events, including author appearances and children’s activities, which make each Barnes & Noble store an active part of its community.
The Company believes that the key elements contributing to the success of the Barnes & Noble stores are:
Proximity to Customers. The Company’s strategy is to increase its share of the consumer book market, as well as to increase the size of the market. Since it began its bookstore roll-out, the Company has employed a market clustering strategy. As of January 31, 2009, Barnes & Noble had stores in 163 of the total 210 DMA (Designated Market Area) markets. In 66 of the 163 markets, the Company has only one Barnes & Noble store. The Company believes its bookstores’ proximity to their customers strengthens its market position and increases the value of its brand. Most Barnes & Noble stores are located in high-traffic areas with convenient access to major commercial thoroughfares and ample parking. Most stores offer extended shopping hours seven days a week.
Dominant Title Selection. Each Barnes & Noble store features an authoritative selection of books, ranging from 60,000 to 200,000 titles. The comprehensive title selection is diverse and reflects local interests. In addition, Barnes & Noble emphasizes books published by small and independent publishers and university presses. Bestsellers typically represent between 3% and 5% of Barnes & Noble store sales. Complementing this extensive on-site selection, all Barnes & Noble stores provide customers with access to the millions of books available to online shoppers at Barnes & Noble.com while offering an option to have the book sent to the store or shipped directly to the customer. The Company believes that its tremendous selection, including many otherwise hard-to-find titles, builds customer loyalty.
Store Design and Ambiance. Many of the Barnes & Noble stores create a comfortable atmosphere with ample public space, a café offering, among other things, sandwiches and bakery items, and public restrooms. The cafés, for which the Starbucks Corporation is the sole provider of coffee products, foster the image of the stores as a community meeting place. In addition, the Company continues to develop and introduce new product line extensions, such as proprietary gifts, and Barnes & Noble @ School, providing education tools for teachers, librarians and parents. These offerings and services have helped to make many of the stores neighborhood institutions.
Music/DVD Departments. Many of the Barnes & Noble stores have music/DVD departments, which range in size from 1,300 to 6,000 square feet. The music/DVD departments typically stock over 30,000 titles. The Company’s DVD selection is focused on foreign films, documentaries and episodic TV shows. In 2008, the Company introduced an extensive selection of BluRay discs. The music selection is tailored to the tastes of the Company’s core customers, focused on classical music, opera, jazz, blues and pop rock. The music department features RedDotNet, an advanced listening station technology. RedDotNet enables customers to listen to any compact disc in the store, sampling up to 200,000 music titles using scanner technology. RedDotNet is connected to the Company’s online electronic music catalog.
Discount Pricing. Barnes & Noble stores employ an aggressive nationwide discount pricing strategy. The current pricing is 30% off publishers’ suggested retail prices for hardcover bestsellers and 20% off select feature titles in departments such as children’s books and computer books. The Barnes & Noble Member Program offers members greater discounts. For an annual fee of $25, members receive discounts of 40% off publishers’ suggested retail prices on hardcover bestsellers, 20% off adult hardcovers, and 10% off on almost all other merchandise. These discounts are available to members for purchases made at Barnes & Noble stores, B. Dalton bookstores and on Barnes & Noble.com. In addition, members receive exclusive offers and promotions via direct mail and email.
Marketing and Community Relations. Barnes & Noble stores are generally launched with a major grand opening campaign involving extensive print and radio advertising, direct-mail marketing and community events. Each store plans its own community-based calendar of events, including author appearances, children’s storytelling hours, poetry readings and discussion groups. The Company believes its community focus encourages customer loyalty, word-of-mouth publicity and media coverage. The Company also supports communities through efforts on behalf of local non-profit organizations that focus on literacy, the arts or K-12 education.
The Company has seasoned management teams for its stores, including those for real estate, merchandising and store operations. Field management includes regional directors and district managers supervising multiple store locations.
Each Barnes & Noble store generally employs a store manager, two assistant store managers, a café manager and approximately 50 full- and part-time booksellers. Many Barnes & Noble stores also employ a full-time community relations manager. The large employee base provides the Company with experienced booksellers to fill positions in the Company’s new Barnes & Noble stores. The Company anticipates that a significant percentage of the personnel required to manage its new stores will continue to come from within its existing operations.
Field management for all of the Company’s bookstores, including regional directors, district managers and store managers, participate in an incentive program tied to store productivity. The Company believes that the compensation of its field management is competitive with that offered by other specialty retailers of comparable size.
Barnes & Noble has in-store training programs providing specific information needed for success at each level, beginning with the entry-level positions of bookseller. Store managers participate in annual merchandising conferences, and district managers participate in semi-annual training and merchandising conferences. Store managers are generally responsible for training other booksellers and employees in accordance with detailed procedures and guidelines prescribed by the Company utilizing a blended learning approach, including on-the job training, e-learning, facilitator-led training and training aids available at each bookstore.
The Company’s business, like that of many retailers, is seasonal, with the major portion of sales and operating profit realized during the fourth quarter which includes the holiday selling season.
The Company cultivates a culture of outgoing, helpful and knowledgeable employees. As of January 31, 2009, the Company had approximately 37,000 full- and part-time booksellers. The Company’s employees are not represented by unions, with the exception of 45 Sterling Publishing employees, and the Company believes that its relationship with its employees is excellent.