This past June, Barnes & Noble released its financial report for the fiscal year, and things are not looking particularly bright and sunny for the national book chain. The bookseller reported a net loss of $154.8 million, more than double last year’s net loss. Total sales fell 4.1 percent to $6.84 billion. Although Barnes & Noble’s mainstays such as print books, toys and games have remained essentially flat, and digital content sales have even gone up, its floundering Nook segment, which makes up the bulk of the year’s losses, has become such a dead weight that the company has decided to discontinue its production of color Nook tablets altogether.
In the wake of the implosion of Borders, whose collapse many blamed in part on its lack of a comprehensive digital content strategy, Barnes & Noble’s decision to create a line of e-readers to compete with the likes of the Kindle seemed like a good business strategy. Barnes & Noble manufactures and sells these devices to consumers, who in turn buy digital content from BN.com to read on their devices, all while avoiding profit-snagging third parties like Amazon’s Kindle Store or Apple’s iBookstore.
To a certain extent, this business model has worked with black-and-white, e-ink devices. But as full-color, high-definition tablets surged in popularity, Barnes & Noble’s Nook HD and Nook HD+ began to face some serious competition from the Kindle Fire and the Apple iPad with Retina display. Barnes & Noble tried to climb its way out of a slippery slope of flagging profits, only to see Nook sales decline 16.8 percent from last year’s figures, losing $475.4 million this year compared to $261.7 million last year. Eventually, the Nook-sized hole in Barnes & Noble’s pocket grew too big to sustain it any longer, and the bookstore chain decided to cut back by halting its production of color tablets.
CEO William Lynch admits that Nook losses were “much higher than expected” and, following the decision to cease tablet production, resigned his position of nearly three years. Before he left the company Lynch made it clear that Barnes & Noble’s “aim is to sell great tablets connected to our best content catalog and high-quality bookstore services we’ve done, but [to] do so without the sizable upfront risk.”
Barnes & Noble says in the future it will work with third parties to make color tablets in exchange for co-branding opportunities, but will continue to make its own black-and-white, e-ink devices. In the meantime, savvy consumers can buy existing tablets from Barnes & Noble’s retail locations and web store at a sizable discount through the 2013 holiday season.