Barnes & Noble's Problems Are Bigger Than Nook


The nation's largest bricks-and-mortar bookstore Barnes & Noble admitted defeat yesterday by abandoning its attempt to compete in the tablet market.

The world wasn't shocked.

Even without the benefit of hindsight, the hubris displayed by Barnes & Noble executives throughout the whole process was laughable. On yesterday's conference call, during which they discussed the company's quarterly results, its executives were curt and unresponsive to analyst questions. It was a poor showing to put it mildly. One would have been excused for expecting humility given that they had just overseen the biggest quarterly loss in the company's history.

When the first Nook Color was introduced at the end of 2010, it was pitched as a state-of-the-art, ground-breaking device. The "world's first color ereader." It was even lauded as a desirable alternative to the Apple iPad, which Barnes & Noble CEO William Lynch said was too heavy and too expensive. At the time, it sounded like naïve, pie-in-the-sky ambitions from a young and inexperienced CEO, which Lynch was at the time (and arguably still is). But now, it's nothing more than a massive failure that's cost the ailing bookstore chain hundreds of millions of dollars at a time when it simply couldn't afford it.

To be clear, the Nook is not the problem. It's rather a symptom of the way the company has been mismanaged. I discussed this last year in an article about Chairman Len Riggio's classic covetous overreach to extract value from the company without selling his shares -- which, of course, would have tipped off other shareholders as to the prudence of doing so. Instead, he sold Barnes & Noble the stores that now make up its college division, sending the tangible book value of the company from above $500 million down to a negative $330 million.

And I was reminded of this fact again yesterday. Despite my lack of confidence in the way Barnes & Noble is managed, I'm nevertheless a frequent and loyal customer. During a visit yesterday, I asked the person manning the Nook desk what he thought about the news. I figured that he'd at least have an opinion considering where he was working in the store. But to my surprise, he hadn't heard anything about it.

So there you have it: At the same time that Barnes & Noble executives hide behind a telephone receiver and effectively refuse to answer legitimate questions from analysts, they leave their poorly paid foot soldiers on the proverbial front lines without so much as a heads-up that a seismic change is under way. Suffice it to say, both Barnes & Noble's shareholders and employees deserve better.

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