With sales of approximately $2. 45 billion a year, Barnes & Noble was the largest bookstore chain in the world throughout the eighties and mid-nineties. It had at least one story in every major US city and employed more than 20,000 employees. In 1993, the company went public, but 26% of it was still controlled personally by Chairman and CEO Leonard Riggio. He purchased the Barnes & Noble chain for $1. 2 million in 1971.
The basic concept was to have a few so-called superstores with more than 70,000 square feet of total selling space in the biggest cities and a large number of smaller sized discount stores across the country, often located in malls. The superstores turned out to be a huge success and so their number rapidly grew from four units to more than 400. In 1997, superstores accounted for 77% of the company's sales and more than 85% of its operation income.
Over the years, Barnes & Noble also became a publisher for old titles such as Webster's Dictionary, it established a mail-ordering book business, ran a membership club for book discounts and became the largest supplier of books through catalogs in the US. Although the company broadened its capacity to those book-related businesses, the revenues and profits continued to be dominated by its bookstores. Procurement and logistic functions were centralized by Barnes & Noble for all their store operations and were located in its headquarters in Manhattan. This was one of several measures to grant discount book prices to their costumers.
The centralization process allowed Barnes & Noble to order from publishers in large numbers by which they obtained greater discounts than other book retailers. Inventory costs for both, Barnes & Noble and the publishers, were reduced by a superior access to books in short supply and longer payment terms. The relationship between Barnes & Noble and the publishers, however, was not entirely balanced because the superstores had particularly high return rates. In order to prevent these returns the publishers should have allowed even higher markdowns what they were not willing to do.
Despite this fact, direct purchasing from publisher increased because large numbers of books were stored in large company-owned warehouses. The main advantage of this procurement was short-term availability: books in stock in warehouses could be shipped in stores in two to three days while ordering books from publishers often took several weeks. Logistic systems were further improved by the introduction of an internal online inventory tracking system called WINGS in the early 1990s and by the installment of a new generation of store systems called 'BookMasters', which will be described later on.
As mentioned above, Barnes & Noble's store operations can be divided into selling in superstores and in small stores. The vast majority of the stores were leased because commitments under long-term operating leases could be kept off its balance sheet. If these leases would have been capitalized, the company's invested capital would not have been $694 million as reported but approximately $2. 97 billion in 1996. Barnes & Noble's superstores have an average size from 10,000 to 60,000 square feet. A new superstore of a size of 27,000 square feet cost about $2 million and would have needed average sales of $11,000 a day to survive.
An individual store carries roughly 60,000 titles and the title selection became the store manager's responsibility after the opening. The computerized store system BookMaster, which became standard in all stores, supported faster register transactions, real-time communication among stores, the distribution centre, and wholesalers, and a 2. 5 million title database designed for book browsing. The use of these computer terminals, however, was restricted to Barnes & Noble's employees and could not be used by costumers for online purchasing, neither in stores nor at home.
Barnes & Noble's smaller stores are usually operated under chain trademarks such as B. Dalton Bookseller, Doubleday Book Shops, and Scribner's Bookstore. These stores have smaller selections, higher prices, and fewer markdowns. Some place greater emphasis on hardcover and gift books. Some chains, however, became victim of cannibalization: Barnes & Noble has closed, for example, more than 50 B. Dalton stores per year since 1991. The reduction of small stores led to increased turnover in superstores and consequently to ambitious expansion plans.
Decreasing earnings in 1996, however, made the company reduce building of new superstores from 90 to only 70 a year. As far as marketing is concerned, the small stores relied on the convenience of going to the nearest store incorporated in a mall to draw traffic, marked down rather selectively but generally took off 15% to 25% of the publisher's suggested price for hardcover bestsellers. The superstores with a general lower price structure tried to attract destination shoppers. Discounted books, such as all hardcovers, a selection of bestsellers, new editions, and special promotional items, were placed in the front of the store.
Besides price reductions, well-informed salespeople and in-store service were decisive marketing factors. Barnes & Noble served Starbucks coffee and got authors into its stores for book signings, talks, and other events. The Barnes & Noble brand name which is reserved for the superstore business should suggest qualities like a large selection, everyday low prices, and an unintimidating atmosphere. The brand name was built up by humorous TV commercials, extensive print and radio advertising, direct-mail marketing, and community events.