3 Things Barnes & Noble Must Do to Survive Its Next Chapter

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Barnes & Noble Nook Tablet Goes On Sale
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Like a played-out fiction series, Barnes & Noble's (BKS) quarterly reports are starting to get predictable -- and depressing. Its latest, which came out on Tuesday, was another stinker. Revenue slipped 7 percent to $1.24 billion, lower than analysts were forecasting. The stock opened higher on the report as a result of the superstore chain's loss clocking in smaller than expected, but a loss is still a loss.

The fading Nook business is a major reason for shrinking sales at Barnes & Noble, but it's hardly the only trouble spot. The company's guidance calls for comparable-store sales at its retail and college bookstores to continue to decline. Folks aren't reading traditional books the way they used to, and Barnes & Noble's is waking up from its dream of being a leader in digital delivery to find itself in a Nook nightmare.

Let's not be completely negative. The market obviously likes some aspects of Barnes & Noble's performance, and it's not too late for the company to engineer a turnaround. Let's go over a few things that the book giant could do to get itself back on track.

1. Fix the Nook

The drag that the Nook has been on Barnes & Noble is real. The e-reader platform that was supposed to make B&N as relevant in digital books as it is in leafy reads has failed. Its Nook business experienced a brutal 79 percent plunge in hardware sales, but a perhaps even more problematic 24 percent drop in digital content sales.

Let's talk content. Nook readers and tablets aren't selling well, but the installed base is still growing incrementally. If content sales are sliding, it means that it's not just potential buyers who are giving up.

Barnes & Noble's stock rallied earlier this summer when the company announced that it would be separating its Nook business. On Tuesday's call the retailer explained that it's still working toward that goal. However, it is making some interesting moves in case it gets stuck with the business that few are likely to want at the moment.

Barnes & Noble is taking a page out of the Android playbook by having others do the heavy lifting. Samsung (SSNLF) recently put out the Galaxy Tab 4 Nook, an Android tablet that is the first Nook device to offer front- and rear-facing cameras as well as GPS. It's a Samsung tablet that just happens to play nice with Barnes & Noble's digital ecosystem, and the bookseller is offering it for $179 with $200 in free book, magazine and video content.

This is what Barnes & Noble should've done from the start. It's unfortunate that it's getting it right on specs, pricing and external partners now, when tablet sales are starting to fade. However, at least it has more of a fighting chance here. Give the market a reason to believe that Nook will stick around, and everything else will follow.

2. Beef Up the Website

Barnes & Noble was supposed to update BN.com this summer. It didn't happen, and the company explained in Tuesday's call that it will hold off until after the holidays. It doesn't want to risk alienating customers during the pivotal time of year when it actually turns a profit.

Really? Since when is BN.com hallowed ground? Online sales actually declined during Barnes & Noble's last holiday quarter -- a period during which Amazon.com (AMZN), that Kindle-peddling powerhouse, saw a 20 percent spike in sales. There seems to be little to gain by sticking to the status quo. If Barnes & Noble has an e-commerce platform that it thinks can improve sales, it's an even better idea to introduce it before holiday shoppers ignore BN.com again.

3. Update the Stores

America's last book superstore chain standing is struggling to grow sales at a time when the costs of operating a bricks-and-mortar retail business are continuing to increase. That's a bad combination, but that only makes it that much more important the the company shake up its stores while it still has the clean balance sheet to do so successfully.

No one is surprised anymore to walk into a Barnes & Noble only to find more people in the coffee shop and bakery than in the actual bookstore. Sometimes it seems as if the expanding retail space dedicated to learning toys and children's games is busier than its aisles of books. These trends aren't going to reverse themselves, so Barnes & Noble may as well give the customers what they want.

Along the way it may want to embrace the visual translation of books into movies and TV shows. Barnes & Noble's report highlighted the success of "Frozen," "Divergent" and "Gone Girl." Well, it's no coincidence that two of those three have also been Hollywood hits over the past year, and the third hits a multiplex near you in a few weeks. Barnes & Noble needs to get some more skin in that game. It needs to become a force that aids writers in getting their works produced as filmes in exchange for the juicy licensing fees that await in the future -- and that will mean embracing the fact that books may be the first step in a property's life cycle, but not necessarily the juiciest step. Barnes & Noble needs to become a multimedia content distributor while it's still a tastemaker. If not, it's in for a long fall that will only end when it crashes alongside the ruins of Borders and the other once-beloved, now-shuttered book chains.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and Barnes & Noble. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.
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