Should Barnes & Noble Pull the Plug on Nook?


Barnes & Noble continues its slow fade as a retailer, but its Nook line is destined for a quicker death.

The last major bookseller left standing saw its revenue slide 6.6% to $1.1 billion for the nine weeks through Dec. 28 that mark the holiday shopping season. That may not seem so shabby given the fading popularity of leafy books, and the news is actually surprisingly encouraging on that front. Back out Nook-related products and comparable bookstore sales slipped a mere 0.2%. There are apparently still a lot of people out there who prefer to curl up with a hardcover book or a paperback.

However, it was another brutal period for the Nook, with revenue plunging 60.5% to $125 million for the period. Folks who thought things couldn't get worse than Barnes & Noble's 32% decline in Nook sales in its most recent quarter are finding out that some basements have basements.

Sales of devices and accessories plunged by two-thirds, and the news doesn't get any better when we check out the Nook ecosystem. After all, a decline in sales is still incremental. With every passing quarter there are more Nook e-readers and tablets in the wild. Even if Barnes & Noble is retreating -- there were no new tablets introduced in 2013 -- surely content sales must be growing given the volume of Nook gadgets out there. Right?

Wrong. Digital content sales plunged 27.3% to $36.5 million.

Barnes & Noble's ecosystem was supposed to be the chain's saving grace. It was supposed to be the marketplace that would keep customers close and derive huge margins given the cost advantage of digital distribution. Unfortunately, it's now down just a little more than 3% of revenue -- and shrinking.

Barnes & Noble thought that it could follow and Apple into e-readers and tablets, but it was never going to be a war that it could win. Amazon's cutthroat pricing forces rivals into margin-pinching bets that don't pay off right away. Apple doesn't have a problem with hardware markups, but iPad sales have also been stagnant lately.

What are the advantages to the Nook in a world of cheap Kindles and prolific iPads? Barnes & Noble thought that its relationship with publishers and its ability to pump out in-store promotions to Nook owners would help set it apart, but those traits fade quickly when sales are going the wrong way.

Holding its own when it comes to traditional books will keep Barnes & Noble around for a bit longer, but it's going to be hard to promote its Nook as a worthy long-term investment. This game belongs to Amazon, Apple, and the countless makers of Android tablets. Barnes & Noble customers know how to read. They can see the writing on the wall.

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Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of and Apple. It owns shares of Barnes & Noble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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