University of Kansas Barnes & Noble Could Succumb to the Retail Apocalypse Critical Analysis Please follow the constructions and analyze the article Do not

University of Kansas Barnes & Noble Could Succumb to the Retail Apocalypse Critical Analysis Please follow the constructions and analyze the article Do not forget to cover the notes I post, especially the background and the problem part Barnes & Noble Could Succumb to the Retail
Apocalypse
The once-dominant bookstore chain has survived, but it still
hasn’t solved its Amazon problem.
Adam Levine-Weinberg
(TMFGemHunter)
Mar 11, 2019 at 9:16AM
Over the past few years, a combination of declining retail traffic and rising competition has led
to a slew of retail bankruptcies. Many well-known retailers have disappeared recently, including
Toys R Us (and sister chain Babies R Us), fashion retailers like The Limited and Wet Seal, and
electronics stores HHGregg and RadioShack (with the exception of some dealer-operated
franchise stores). Mall standbys Payless ShoeSource, Gymboree, and Crazy 8 are going out of
business in 2019, while Sears and Kmart barely avoided liquidation earlier this year.
So far, Barnes & Noble (NYSE:BKS) has survived this big shakeout despite being one of the
first companies to have its business disrupted by Amazon.com (NASDAQ:AMZN). That said,
the bookseller’s recent results suggest it could be living on borrowed time.
Revenue and profitability are declining
Barnes & Noble’s revenue has been shrinking for years thanks to a series of comparable-store
sales declines and occasional store closures. Total revenue fell from $4.2 billion in fiscal 2016 to
$3.9 billion in fiscal 2017, $3.7 billion in fiscal 2018, and an estimated $3.6 billion in fiscal 2019
(which ends next month).
While Barnes & Noble has implemented aggressive cost cuts to offset these sales declines, they
haven’t helped much. Adjusted EBITDA fell from $186 million in fiscal 2016 and $187 million
in fiscal 2017 to $145 million last year.
Barnes & Noble’s initial guidance for fiscal 2019 called for adjusted EBITDA to rebound to
between $175 million and $200 million. However, management recently revealed that the
company will fall far short of that mark.
Decent holiday season performance wasn’t good enough
In early January, Barnes & Noble reported that comp sales surged 4% between Black Friday and
New Year’s Day. This offset weak performance in early November, driving a 1.3% comp sales
gain for the nine-week holiday period. However, Barnes & Noble needed to ramp up advertising
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and promotions to achieve this level of sales growth. As a result, management warned that the
company might reduce its earnings guidance by as much as 10% when it reported earnings.
The outcome was even worse. Last week, Barnes & Noble reported that comp sales rose 1.1% in
the third fiscal quarter — the company’s best sales performance in several years — but adjusted
EBITDA still declined to $133 million from $139.5 million a year earlier. Furthermore, Barnes
& Noble now expects full-year adjusted EBITDA to come in between $140 million and $155
million. That’s more than 20% below its previous guidance, based on the midpoint of the range.
This result is particularly disturbing because Barnes & Noble benefited from several tailwinds
last quarter. The liquidation of Toys R Us provided a lift for Barnes & Noble’s educational toys
and games business. Meanwhile, there was a strong lineup of new titles last quarter, led by
Michelle Obama’s memoir, the best-selling adult book since 2015.
Posting sales growth will be a lot harder after Barnes & Noble laps the Toys R Us store closures
— especially in quarters that have a less favorable new title lineup. Management acknowledged
during the earnings call that Barnes & Noble’s sales continued to decline in the first month-plus
of the fourth fiscal quarter.
The future doesn’t look bright
Barnes & Noble’s projected adjusted EBITDA for fiscal 2019 will barely cover its annual interest
expense of around $13 million and its planned capex of $110 million to $120 million. Free cash
flow probably won’t be sufficient to cover Barnes & Noble’s dividend, which costs about $11
million per quarter. That’s a dismal result for a year in which the company has benefited from
strong retail sales trends, along with some unusual tailwinds.
Looking ahead, Barnes & Noble faces secular challenges. Amazon plans to continue expanding
its brick-and-mortar Amazon Books chain. The e-commerce behemoth has also made it virtually
impossible to compete for online sales. Amazon’s superior scale gives it a cost advantage for
shipping books — particularly when it can ship the books along with other items. The result is
that Barnes & Noble’s e-commerce sales peaked years ago.
Given that Barnes & Noble is struggling to eke out a profit and post positive free cash flow when
market conditions are favorable — and that Amazon’s expansion will continue to pressure the
business — the company seems likely to fall into distress in the next recession.
The one thing in Barnes & Noble’s favor is that it has only $129 million of debt — although that’s
up from just $60 million a year ago. On the other hand, the company is trying to sell itself, which
might benefit shareholders but could result in the buyer taking on more debt.
Despite the return to comp sales growth last quarter, Barnes & Noble seems to be as far as ever
from finding a viable strategy to deliver sustainable, profitable growth. And without that, the
company is probably doomed to failure.
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First paragraph needs to be background. (about half of the page)
Background ½ page
1.
2.
3.
4.
E cigs not regulated
Saver than real cigs
Much more socially acceptable (cool)
Innovation
Problem (1 sentence)
1.
2.
3.
4.
5.
6.
E cigs are limiting the sale of tabaco
Advertising to children
Market is too fluid
Safety
Barriers to entry
Rental v online sales
Solutions (3) (most important part)
1.
2.
3.
4.
5.
Regulation field
Lobbying
Study (independent)
E duration
Ban online sales
Recommendation – Best solution (most important part)
1. What you recommend
2. And why
Measures of sources
1.
2.
3.
4.
Sales
Number of underage people smoking (what is the change)
The change in age of 1st cigs
General health (health population)
What I learned (1 sentence)
Need 3 sources Not WIKIPEDIA
Heading and bullets are important
DFDA, PUBLIC LAW SOURCE —- SOURCES
Background
1.
2.
3.
4.
5.
6.
7.
B and N $ goes down
B and N $ P (profit) goes up
Online retailers go up
Foot Traffic
Comp store sale go down
Debt rising
Cash decrease
Problem
1.
2.
3.
4.
5.
Amazon taking on
B and N ready to close
All the background is part of the problems
Free Alternative
Technology
Solutions
1. Take advantages of holdings
2. More promotion
3. Revive pricing
4. Contract of amazon
5. Diversify products
6. Diversify business
7. More joint ventures
8. Increase selection
9. Loral events
10. Incentives
11. More samples
12. Customer services
13. Tie into community
Measure
1. Return customers
– Number
– Frequency
2. Feedback
3. Comp stores sales
4. Cash flow statement
5. Return earnings
6. Dividend/yield
7. Trial rate of new products
Assignments and Quiz
Critical Analysis Exercises (First 2 @ 7.5% each, Third report @15%): You will be responsible for
submitting three individual critical analyses of a problem or opportunity described in an article or case posted
on Canvas. Critical analyses must be a maximum of three pages in length; only the first three pages will be read
and evaluated by the instructor. You will identify the problem or opportunity and discuss a viable solution based
on your analysis of the case. The general structure of all critical analyses:
1. Describe the business situation, including the macro-environmental and micro-environmental conditions
facing the organization.
2. Develop the problem statement: the opportunity or threat facing the organization.
3. What alternative strategies and programs would you consider dealing with the opportunity or threat to
the organization? Present each alternative in sufficient detail to give the reader an idea of why it may be
beneficial.
4. Recommend one or more of the alternatives you have identified. Inform the reader of your reasons for
these recommendations.
5. Describe tracking metrics to determine whether your recommended strategies and programs are
effective. Be sure to include both intermediate and conclusive metrics to guide management’s
redirection of ineffective strategies.
6. Summarize what you have learned from your critical analysis.
You are encouraged to do external research on the industry or the company as a context for your analysis. In-
text source citations and a comprehensive bibliography are required. Your report must include the focal
reading plus at least three references in addition to the company’s website or Wikipedia.

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