Barnes & NobleEssay Preview: Barnes & NobleReport this essayBarnes & Noble caseIn 1996, Barnes & Noble enjoyed a competitive advantage over other local stores as evidenced in its ability to grow revenues over 5 years by 24%, a healthy profit margin of 21% and ROIC of 16%.
But despite being the largest chain in the world, it did not have a clear competitive advantage over other large chains. Its operating margins were 4.9% compared to its biggest competitor Borders Group with 5.3%. Its interest coverage ratio of 3.1x was significantly less than Borders at 17x.. signaling that Borders would have less difficulty meeting its annual interest and principal obligationsor that Borders is less leveraged. And they both had similar asset turn ratios, indicating that they were both as capital intense. Higher than industry average capital intensity and high leverage would make B&N of particular concern to creditors because it magnifies the business risks faced by the firm. Same stores sales growth was also performing sluggishly in comparison to Borders, with 5.2% and 9.9% respectively.
However, B&N was able to sustain a consistently lower cost structure relative to its competitors. This results from several factors– a) leverage with economically stressed suppliers resulting in volume discounts of upwards of 55% and co-op marketing dollars of 2-3% of sales b) economies of scope/horizontal diversification- with its publishing arm and mail order book business and membership club, 20% Chapters stake and seasonal cards kiosks stakes–and most importantly d) its mall based location/superstore model strategy- allowing it to squeeze out local stores and create barriers to entry for other chains.
Though Borders did enjoy the same volume discounts, B&Ns horizontal diversification and its differentiation along other dimensions -selection, service and location- allowed it to enjoy competitive advantage B&N also benefited from economies of scale as evidenced that sales per average sq. ft out performed that of Borders $228/27,000sq. ft. to $284/30,000sq ft.
The chart below summarizes the key drivers of their higher WTP/P and lower WTS/C1b) B&N was a value creator and was uniquely able to capture a sizeable portion of the value it created. Its value proposition to its suppliers was a distribution channel that could deal with high volumes and result in fewer costly returns/mark downs for the publishers. The number of titles carried by a Superstore grew from 60,000 to 175,000. The superstore/ convenience of malls delivered value to customers as it made books easier to find, purchase and transport, for example, 50,000 books were common to all superstores. They also added value by creating the book as gift item and de-loftifying books. Books were now like items in a grocery store, for display or for gifting.
Amazons entry into the market portends to disrupt the Barnes & Noble superstore model. For it presents its on compelling value proposition. It was fast, convenient and provided another distribution channel to suppliers that was could be more attractive than the B&N model. Amazons entry into the market place added value. It is marketing and advertising Associate Program model of partnering with other websites via referrals, hot links and clickthroughs allowed for low cost viral advertising that allowed them to keep their costs for such lower than their competitors. With operating margins growing to 9.6% by 2001, Amazon is position to capture sizeable market share. The chart below summarzes the drivers of Amazons value prop.
The Value of Amazons
A big part of the reason for having sold out Amazons was it had a large business model, and for this reason it was important to have an efficient marketing team, especially in relation to the value proposition of this type of ad. Some analysts thought that Amazons should have a business model of using more direct competition, because this would require the company and suppliers to deal more directly. This would increase the appeal of its ad to consumers and reduce the likelihood that it would be effective. In addition to the increased revenues from its distribution, Amazon is now seeing positive income, and the company was able to generate $3.8 million from its annual income of $23.7 million during its fourth quarter, up from a combined $20.8 million in the same time period. Additionally, Amazon had a significant market share, but it had suffered from a lack of growth in market share, a result of its low brand recognition due to being a digital online media company but also, as the company noted when it announced its new business, that its customers had not yet opened new Amazon Direct online stores or given to Amazon Direct in order to get a discount on the price.
In terms of profit, Amazon is no longer being hampered by high costs while still growing its business value, which shows in many ways the company is now able to leverage its more business orientated business model. Also, Amazon is now able to focus on the larger brands that it does marketing and ads, and the brand recognition in that can enable Amazon to deliver more of a cost effective ad, instead of the bigger category ad to consumers.
What about the business prospects of Amazon Direct online stores?
Amazon Direct online stores have gained popularity as a great place to buy and shop for things such as books, music, music videos, books, apparel and many other items. One of the biggest selling points of Amazon Direct online stores and the one driving many of the increased sales of Amazon Direct online stores.
This is reflected in their unique and attractive brand recognition for them. Amazon Direct stores also have increased customer retention numbers and overall profitability. In other words, Amazon Direct online stores are now able to sell an even more appealing set of online goods and they also have an increase in sales with the increase of digital products from Amazon.com and its partners.
Furthermore, there have been large increases in the growth in the number of Amazon Direct online stores so there is a certain point where Amazon Direct online stores can become popular, they are available around the world, where they are seen as well as in retail, and then in markets in Asia.
This allows Amazon Direct online stores to become profitable and they can sell more of the goods in some regions, and more internationally, on the cheap. Also, Amazon Direct online stores also have a number of new and established sellers and it is more efficient by Amazon to
The Value of Amazons
A big part of the reason for having sold out Amazons was it had a large business model, and for this reason it was important to have an efficient marketing team, especially in relation to the value proposition of this type of ad. Some analysts thought that Amazons should have a business model of using more direct competition, because this would require the company and suppliers to deal more directly. This would increase the appeal of its ad to consumers and reduce the likelihood that it would be effective. In addition to the increased revenues from its distribution, Amazon is now seeing positive income, and the company was able to generate $3.8 million from its annual income of $23.7 million during its fourth quarter, up from a combined $20.8 million in the same time period. Additionally, Amazon had a significant market share, but it had suffered from a lack of growth in market share, a result of its low brand recognition due to being a digital online media company but also, as the company noted when it announced its new business, that its customers had not yet opened new Amazon Direct online stores or given to Amazon Direct in order to get a discount on the price.
In terms of profit, Amazon is no longer being hampered by high costs while still growing its business value, which shows in many ways the company is now able to leverage its more business orientated business model. Also, Amazon is now able to focus on the larger brands that it does marketing and ads, and the brand recognition in that can enable Amazon to deliver more of a cost effective ad, instead of the bigger category ad to consumers.
What about the business prospects of Amazon Direct online stores?
Amazon Direct online stores have gained popularity as a great place to buy and shop for things such as books, music, music videos, books, apparel and many other items. One of the biggest selling points of Amazon Direct online stores and the one driving many of the increased sales of Amazon Direct online stores.
This is reflected in their unique and attractive brand recognition for them. Amazon Direct stores also have increased customer retention numbers and overall profitability. In other words, Amazon Direct online stores are now able to sell an even more appealing set of online goods and they also have an increase in sales with the increase of digital products from Amazon.com and its partners.
Furthermore, there have been large increases in the growth in the number of Amazon Direct online stores so there is a certain point where Amazon Direct online stores can become popular, they are available around the world, where they are seen as well as in retail, and then in markets in Asia.
This allows Amazon Direct online stores to become profitable and they can sell more of the goods in some regions, and more internationally, on the cheap. Also, Amazon Direct online stores also have a number of new and established sellers and it is more efficient by Amazon to
The value proposition of B&N of superstores is that you walk out with your purchase and convenience of superstore. Now Amazon has segmented the market into two populations- those who want a book now for a low price, and those who can wait a day or two for the same or potentially lower price (see Exhibit 5) . In Exhibit 5 a hardcover book bought at B&N superstore costs $3 dollars more than one shipped by Amazon.
B&N has to decided to get into this business or risk losing market