There are a number of articles in the financial press about the sale of book store chain Barnes & Noble to hedge fund Elliott Advisors headed by famous, (or infamous depending on your point of view), activist investor Paul Singer. This is one of the articles.

https://www.forbes.com/sites/lawrenc.../#25e75b4eef8f

Earlier today I was in my local Barnes & Noble store trying to make a deal to buy three bridge books - "bridge" as in the card game. I have a B&N members card which costs $25.00/year. If I had agreed to pay the full price for all three books, the cost would have been in the $70 to $75 neighborhood - plus a local 9 percent sales tax. (My B&N "membership" entitles me to an automatic 10 percent discount which roughly offsets the local sales tax.) Since I have bought bridge books - as well as numerous other books - from B&N over the years, they periodically send me electronic "store coupons" and other enticements to try and goad me into buying more. I felt justified in trying to negotiate a lower price since all three of those books were priced higher than I could have got them elsewhere. (One of the books was overpriced by nearly $10.00. The cumulative overpricing for all three books was just over $19.00, compared to online pricing, so I could probably have bought a fourth book - for the same amount of money - elsewhere.)

I suppose the only reason I don't buy all my books online is because I realize/fear that a further shrinking and consolidation of the book sellers market will inevitably lead to permanently higher prices. (I also spread out my book buying to small independent stores and occasionally to the smaller chains like Half Price Books.) I'm definitely a bibliophile as I estimate that my book collection is well over 1,000 volumes. (I bought 20-25 of Mason's poker books back during the poker craze. I even read some of them!)

So B&N sent me a "10 Percent Off Your Entire Purchase" store coupon which I printed out. B&N has sent me 20 percent store coupons in the past, so I thought I could go down to my local store [today] and negotiate a 15 percent discount in exchange for agreeing to buy all three books. Unfortunately, the answer was "Sorry, no can do" so I declined to buy any of the books. B&N lost a $50.00 to $60.00 sale because they weren't willing to agree to a 15 percent discount.

This got me thinking about Jeff Bezos and how he got his start selling books. (Bezos is mentioned in the Forbes article linked above.) It occurs to me that Barnes & Noble - as well as some of the other now defunct booksellers like Borders and Waldenbooks - had a perfect opportunity, early on, to nip Amazon in the bud. For whatever reason, they failed to take Bezos seriously. Now they're struggling to survive. Other chains like Half Price Books recognized the threat posed by Amazon and adjusted their business model accordingly. Barnes & Noble (apparently) failed to recognize the threat. (Either that or they assumed that Mr. Bezos would eventually go bankrupt if he kept trying to undersell them ...)

I can understand the reluctance of long established sellers like B&N to cut their prices in order to match an upstart competitor. However, when somebody like Jeff Bezos comes along, the best time to deal with such a threat is early on. Bezos is now one of the richest men in the world. (Heck, I'm not sure, but he may be the richest!) I can't help but wonder where Bezos would be today if B&N - and all the other book store chains - had "gone to war" with an aggressive price matching policy and stuck with it until Bezos went bankrupt? I wonder how long Mr. Bezos would have continued losing money trying to outlast his competition? (My understanding is that Amazon was not profitable for the first 2-3 years it was in business. Early on, it was definitely a "David versus Goliath" confrontation - and Bezos was David.)

This competitive dilemma is not limited to the bookselling business. Back in the early 1960's a man named "Sam" opened a small department store in Bentonville, Arkansas. Established department store players like Sears and JC Penney - who had been doing their thing for 50 to 100 years - didn't, at first, take Mr. Walton seriously. Now they're out-of-business - or going out of business - and Wal Mart is the largest company in the world (by revenues) according to Fortune magazine.

I'm a bit disappointed that I didn't buy those three books today, but I already have 20-30 bridge books, so I can live without them.

did you really expect to haggle at a big box store? Of course their store policy prevented however you spoke to from negotiating with you, he;d have been fired.

It would have been hard to BKS to have knocked amazon out early on. the online cost structure is so much lower than B&M that BKS would never have been able to match, somebody has to pay for the rent, electricity and store employees. Plus amazon basically has zero cost of capital courtesy of wall street. And amazon lost money for about 15 years on and off, not 2 or 3.

Only way BKS could have won was by copying amazon right away and fully committing to online. but that would have meant sacrificing all profits of a very profitable business at the time which is hard to do

A few thoughts on this:

- Amazon was a big beneficiary of government stupidity/lack of uniformity to some extent. They were able to avoid sales taxes for over a decade while B&M had to pay it.

- The Amazon model is arguably more expensive. Shipping is a huge added cost, and again government subsidizes them via the USPS. As an example:
- A price war against every small competitor is suicide, not to mention anticompetitive behavior. I contend that Barnes and Noble took the rational route by not starting a price war, if their goal was to get as much long term enterprise value as possible. BKS had a P/E of 5 to 10 for most of its post Amazon life. It paid off its stock price several times over. If it reduces prices and goes to the mattresses against every online competitor, would it be in a better position today? I'm not convinced it would.

- A price war would not have mattered anyway because Amazon didn't win because of pricing, and as ahnuld says, Wall Street was happy to provide capital. It won because it provided a high quality service for the busy, the shut-ins, the losers, the lazy. Amazon allowed you to:

a) Easily find and order any item you want with the least time and effort possible
b) See similar items, read reviews, and just generally have a high-information low-stress shopping experience in the world's largest store - right within your house.

It did all this in an attractive, very easy to use and understand website, with none of the little dumb gotchas and annoyances of other 2000 era websites.

I don't believe there is anything Barnes and Noble could have done. The kind of competence that Bezos displays is why Amazon became number 1, not because of pricing or lack of competition or anything else. He was just far better at solving the particular problems that people wanted solved. He was far better at creating smooth, functioning websites with attractive uncomplicated interfaces. In an era when website design was driven by aspie C++ programmers who only cared about matching specs and just didn't get great UI design yet (partly because it was difficult and the tools weren't built yet as computers lacked the processing power), he was far better at understanding what the consumer wanted and figuring out what would keep them coming back and making it happen. In an era where business decision markers had minds ossified in the old business model (buy **** people most want, display it, put a fat 60% markup on it), he saw much further ahead.

The same is true of most of the business winners by the way - they get 1000 little things and make them happen in a way others don't and can't. It's not always obvious either what those things are.

Toothsayer:

Interesting comments/observations. I hope you'll forgive me if I beg to differ ...

To your first point with respect to Amazon having an unfair advantage thanks to their being able to avoid having their customers pay local sales tax.

That "problem" has been corrected. I also do business with Edward R. Hamilton, a mail order discount bookseller operating out of Falls Village, Connecticut. For years, actually decades, Mr. Hamilton has profitably sold his books - to me and many others - without collecting sales tax. Recently, however, Mr. Hamilton has modified his order form as follows: "Due to a recent Supreme Court decision, we are now required to collect applicable sales tax (which may include city and county taxes) based on the delivery address of your order." So I now get to pay 8 percent sales tax on all future book orders I place with Mr. Hamilton. Mr. Hamilton works hard at keeping his costs down, so having to pay sales tax is not a deterrent as far as I'm concerned. (In fact, I'm currently awaiting delivery of three books I've ordered from Mr. Hamilton.)

I was surprised and taken back a bit with respect to your assessment as to why Amazon (and Jeff Bezos) won. I didn't realize that shopping at Amazon made me one of "... the busy, the shut-ins, the losers, the lazy." (OK, I'll admit to maybe the first in your list of the hoi polloi who shop at Amazon.)

Concerning your comment: "In an era where business decision markers [sic] had minds ossified in the old business model (buy **** people most want, display it, put a fat 60% markup on it), he [Bezos] saw much further ahead." I contend that's a big part of the problem at Barnes & Noble - their absolute refusal to trim that "fat" 60% markup down to something less abusive (and more affordable) to their customers. In the hyper competitive world we live in today, any business that thinks they can get away with 60% markups - and remain viable - is delusional. Such companies are being run by a species of long extinct animal called "dinosaur".

Nowadays, price competition is part of competition. Nobody (including B&N) can escape it. We all love, or most of us love, the free enterprise system. The free enterprise system only works when both seller - and buyer - come together. In the [potential] transaction I was considering yesterday, I was looking at a markup of somewhere in the neighborhood of 25 to 33 percent. The store manager refused to reduce that markup by an additional 5 percent. I didn't argue or haggle with him since I realized the decision(s) on pricing and markup were being made by somebody higher up in New York. So I kept my money and walked. (I suppose from a business standpoint, one might say there were two "losers" in this case ...)

This is apocryphal, but I recall a story I heard on a business trip to Dallas, Texas in 1984. It was about the late H. Ross Perot, the famous businessman and entrepreneur. After leaving the Navy, Mr. Perot began his career as a salesman for IBM. For its salesmen, IBM had a yearly "sales quota" that each salesman was expected to meet. Ross Perot met his sales quota in two months!

Mr. Perot approached his managers with an idea. He noticed that the Government was spending considerable sums of money each month paying an army of workers to hand process Social Security checks, stuff and address the envelopes, and send them out. Ross surmised that IBM could save the Government (and taxpayers) a lot of money by automating the Social Security system, so he petitioned his managers to approach the Government with just such a proposal. Realizing they couldn't just flat out say "No" to their top salesman, Mr. Perot's bosses asked for time to consider his idea ...

After a few weeks Mr. Perot's bosses came back to him and explained: "Ross, this is a huge software/hardware integration project. On projects like this, the Government limits the profit margin we can make to 5 percent. We require a minimum [projected] profit margin of 20 percent, so we have to say no." Shortly after this rejection, Mr. Perot left IBM to start his own company: Electronic Data Systems.

Fast forward seven years to 1969. By this point Mr. Perot has secured a contract with the Government for "facilities management" to streamline the computer operations for a new Government program called Medicare. By this point, Mr. Perot is well on his way to becoming a billionaire. So Ross Perot is having dinner in a Manhattan restaurant when several of his former IBM colleagues come walking in. They rush up to him gushing "Ross, how did you know!?" Mr. Perot replied: "Well, five percent sounded like plenty to me."

Ross Perot (and Jeff Bezos) had the foresight and wisdom to realize that a small profit is better than no profit.

Finally, as for your contention: "I don't believe there is anything Barnes and Noble could have done." I have a feeling Mr. Paul Singer believes otherwise. Mr. Singer has just made a $684 million dollar bet that he can turn B&N around. He has hired a man, Mr. James Duant, with a demonstrated track record of taking a struggling (failing) book store chain, making the tough but necessary decisions, and returning the chain to profitability. I suspect Mr. Singer and Mr. Duant had several discussions about what can be done [with B&N] before Mr. Singer got his checkbook out.


[QUOTE=ToothSayer;55342627]A few thoughts on this:

<snip>

books who reads book still. audio books ftw. but yeah you cant stop technology from cutting cost and being better. Stop being cheap and pay the extra 4$ if you want to help books store survive. They do not make much anymore so why bargain 4 4$.

You argued over $15? How are you helping them by making them sell books to you at cost?

I remember the good ol' days of Amazon. No sales tax, free shipping, incredibly generous free returns. They even price matched your purchases post sale, which was incredible for quickly depreciating electronics.

Giving away the house is an easy way to gain fickle customers. The other stores like B&N were getting screwed by sales tax and they had "normal" policies. They certainly tried to compete via book clubs and all sorts of promos.

The easiest way to kill off your competition is to spot it early and buy it, or just copy their features/edge. That's what the big .coms have been doing. B&N couldn't do that because Amazon was very expensive very quickly during the first .com boom and they could't really copy the "edge" of losing money on every sale.

BTW, I ditched Prime a long time ago. Amazon is a shell of what it used to be for a customer. Now they charge sales tax, their policies are not as good, and price matching is long gone, most of the price competitive goods are sold by random sellers - often from China direct. Is Amazon a threat to B&M, or is B&M a threat to Amazon? It is Amazon who is buying up B&M presence and opening stores and 30 years into internet age, 90% of retail is still B&M and that number is not shrinking as much as Forbes articles make it seem.

haven't read that much of the discussion. but i'll give a few thoughts,

could B&N have done what amazon did themselves? maybe, but i think it's far easier said than done that X company should just cannibalize their existing business themselves. obviously, if it's going to be slaughtered, why not do it yourself? (and cut out amazon)....... but killing your own vital business has so many problems associated with it and is easier said than done. i think a new online player has numerous "real world" advantages over B&N.

amazon isn't the dominant online retailer just because it was first or one of the first...... palm computing existed way before apple became the great stock of all-time with the iphone. myspace was pretty big before facebook and to most people is basically the same thing.... amazon/bezos has executed very well, to say the least.

good point by one person on the sales tax.

i read a biography of bezos/amazon and their was a massive fixation on the lack of sales tax....... to go to california on vacation as mid to senior amazon exec you had to register with amazon's corporate lawyer so that it could be documented that your 10 days in california were "pure vacation".....i think the lack of sales tax is completely overlooked in so many cursory analysis of amazon.

This is pretty much true. There is a big tax advantage when local businesses pay 15% sales tax and online retailers were paying nothing, depending on where they were located. a company could sell out of Calgary or many US states to a customer from the atlantic provinces and pay no tax, but if they have a brick and mortar shop like bestbuy, then all their online sales are taxed 15%.

I think the loop is partially closed now for major retailers, but a small under the radar company can easily sell stuff from a state with no sales tax to a province or state that has 15%. its an obvious screwjob to local businesses.

as an aside bezos is a very aggressive operator, hed win whatever area he decides to get into

jfound:

It wasn't $4.00. The cumulative differential - if I had agreed to buy all three of their books at full price - was $19.04. In the past, B&N has sent me store coupons for 20% off. This time they were offering me a puny 10% off - apparently hoping that I would bite. No can do.

What have I done to help book stores survive? Over the past 40 years, I have bought an average of 25-30 books a year - with at least half of those books being bought in B&M stores. When I was still writing software, many of the (super expensive) programming tomes I bought were right off the shelves of Barnes & Noble.

Rather than eschewing customers like me as "cheap," stores like B&N should be falling on their knees in gratitude. Without customers like me - who buy in volume - where do you think they would be? If they had to rely exclusively for their survival on customers who buy one or two books a year, they would already be out of business. Customers like me are their bread and butter.

Business is war - a war between buyers and sellers. I don't apologize one second for refusing to pay the sticker price and trying to bargain for a better deal. I don't know of anybody who goes to a car dealer and sheepishly agrees to pay the sticker price for a new car. (There may be a few of those folks around ... they're called "Suckers".)

If Barnes & Noble (or any of the other "Big Box" booksellers) truly want my business, they would make me an offer I can't refuse. For instance, B&N might try something along the lines of:

Dear Former DJ:

We truly value your business. To show you how much we appreciate you as a loyal customer, we are pleased to extend the following offer.

For the next 12 months, buy a minimum of 20 books from us at a discount of 10% off - plus your 10% off members discount - and we'll agree to sell you as many books as you want (past the 20 book threshold) for 50% off. That's half off for each book in excess of the first 20!

Sincerely,

Your friends at Barnes & Noble

Instead of an offer like this, what I keep getting from Barnes & Noble are appeals to buy children's books and "publishers favorites" from authors like David Baldacci, Patricia Cornwell, and Mary Higgins Clark. I have a list of "Future Books I Intend To Buy" which is currently in the neighborhood of 100 titles. (I've become fascinated with bridge - the card game. There are 20-30 pending book buys in that category alone.)

I'm not holding my breath. The booksellers I do business with continue sending me their catalogs and email appeals. What they haven't sent me is an offer I can't refuse. That suggests to me that they aren't [really] hurting or about to go out of business. (I will note that Half Price Books, a low cost brick and mortar bookseller/dealer/operator, has adjusted their business model to the present reality. HPB is profitable - and selling their merchandise at prices dedicated bibliophiles are willing to pay.) McKay's, a smallish independent bookseller that operates 2-3 "bargain" book stores in Tennessee is also doing well. (I try to visit McKay's at least once a year. When I walk out the door to my car, I usually have to have a McKay's employee carrying the second box of books I have bought.) Edward R. Hamilton is another B&M discount bookseller I have done business with for many years. Mr. Hamilton sells most of his books - remainders, closeouts, and returns - for well under $10.00. Many of the books he sells are former New York Times bestsellers selling at a fraction of their dust jacket price.

The "point" of all this ... Barnes & Noble should quit bellyaching and complaining about customers like me. If it weren't for customers like me, they would have gone out of business a long time ago.

A customer who wants regular 20% and 50% discounts, and who haggles with employees for a discount, is most certainly not where Barnes and noble makes their money.

One might argue that's the type of customer that is driving them out of business.

Man, you need a job.

Barnes and Noble is practically a toy store with a college textbook supply operation attached in NYC now. The whole place is set up to sell you things with significant markups.

OP, how low can you get a Big Mac?

lol @ your sense of entitlement. You have no idea how significant of a customer you are, and the success rate of your supernitty ways are a matter of happenstance

Given the novels you write on these forums, it's obvious you're an outlier when it comes to customers and while you could actually be one of the better customers, you're also a huge pain in the ass. The weirdos, especially the obliviously unselfaware ones, are always a pain in the ass. It's arguable the stores you frequent loathe your entrance and couldn't care less if you went elsewhere. That's management and ownership talking, not some ignorant cashier who immaturely hates their job

I used to have a saying for my emphasis on customer service..."I'll bend over backwards for you, but I won't suck your dick!"

Don't kill your amiability with a lack of amicability. Just saying, it's arguably not always worth it

grizy:

It will be interesting watching the operational changes the new CEO, Mr. Duant, sets in place at B&N. Judging by the [brief] conversation I had with my local store manager, current B&N employees are well aware of Mr. Duant's reputation for cutting costs and getting expenses under control. The $64,000 question: How well does he connect with B&N customers?

https://www.inc.com/justin-bariso/ba...om-amazon.html

Fix Your Business Model - Or Go the Way of the Dinosaurs

I received a PM from an individual who has read my posts in this thread. (He was seeking my advice on an unrelated topic referenced in the thread.) I replied to him, in part, as follows.

I'm curious about something ... I assume you've read my posts in the "Could Amazon Have Been Killed in the Crib?" thread. What is your take on my writings - other than their being a bit too wordy and verbose? My mother grew up during the Great Depression, (i.e. the 1930's). She vividly remembers the time when "nobody had money" and grown men were literally begging for work - any work - so they could eat. Not surprisingly, mother taught me to be "economical" and to always look for bargains. Frankly, it surprises me as to the number of posters in that thread who were chastising me for being "cheap" and trying to negotiate for a better deal. The one chap who referred to customers like me as a "pain in the ass" was really interesting. Most managers and owners I have worked for have always emphasized that all customers are important to the success of the business - even (so called) "Customers From Hell". (Ha! Ha!)

I've never considered myself a PIA, but I do insist on getting good value for my money - and I will walk away from a deal that I don't consider in my best interest. That's how our free enterprise system works - both buyer and seller have to be convinced that they're both getting their money's worth. If either party doesn't believe that, money doesn't change hands. In the book business, there are many sellers who are doing just fine - they're surviving in a very competitive market. If one of those sellers, (i.e. Barnes & Noble), is not doing as well while their competitors are thriving, B&N has to look within ... It's not the "customer's fault" when a business is struggling. If your business model is not working, you either fix it - or go the way of the dinosaurs.

I'm reading a book right now, (i.e. "The Gambler: How Penniless Dropout Kirk Kerkorian Became The Greatest Deal Maker in Capitalist History" by William C. Rempel. It's a fascinating story about a man who, among other things, wasn't afraid to walk away from a bad deal. Mr. Kerkorian was a scrapper, an amateur boxer with an eighth grade education who overcame great adversity to become a billionaire. I highly recommend that you read Mr. Rempel's book. It's not about programming - it's about something much more important: The journey called "Life".

Very often it’s more profitable to go the way of dinosaurs.

I dont think anyone is harping on you for looking out for a good deal. they are doing it because you are haggling at a big box store. a place where its universally understood that this is the price, take it or leave it. you arent at a souq in morocco

express is trading for less than cash right now. if mgmt could be trusted to milk the company it would be a pretty profitable investment right now

I enjoy both your verbosity and your worldview and every post you make. Don't listen to a few naysayers on the Internet - according to the various clowns here I'm a guy who's never made a trade and lives in a basement. They're a bunch of ill-bred malcontents.

Keep haggling those managers at B&N. Retail workers have it far too easy in my view and need to be made to feel pain and discomfort to earn their money. No, it's not acceptable that you're just expected to quietly acquiesce to their 60-100% markup while the author gets $1/book.

It's a bit like tipping for me. If I'm in a nice restaurant and you visited my table a few times for 5 minutes total you're not getting a $50 tip. What the **** is wrong with you that you think you're entitled to that? You get the same as a I tip on a $10 meal at a diner - $5. Do you think you're better than the waitress who works at a diner? Why would I want to give my money to an awful person who thinks that? Why on earth do you think you're entitled to a large percentage of the price of the entire meal?

So good on you and keep being you, man.

Ok Mr. Pink

The point of my post was not to establish OP is a weirdo and pain in the ass. Those are just my observations from experience and insight. I'm sorry if OP took that as a personal insult and to heart, but again, that was not the point. Whatever OP actually is is neither here nor there...

The point of my post was to lol @ OP having a sense of entitlement without having an actual clue so as to the validity of his feels. OP sounded like a poker player who has no tracked results claiming they're wafflecrushing their games to another poker player who has the actual results in front of them, amused by the woeful ignorance...

Which leads to the other point. I myself stated that it's entirely possible that 1) OP is actually a high priority and value customer and 2) there's nothing wrong with haggling. Do you, get that money, I'll never hate on that. The first line is just a jab at how comical doing so can be, especially given it's obvious OP is not like most people (there is nothing wrong with that). The point is that in the process of being that way, possibly insufferably, a business can actually deem a customer not worth it and/or undesirable/unacceptable. The very nature by which one abides can work against oneself and one may be completely oblivious to that.

ahnuld:

Thanks for educating me. I did not know it's considered bad form to try and negotiate for a better deal in a "big box" store. I suppose that's why some folks cheerfully pay $5.00 for a cup of coffee at Starbucks - they "know" you're not supposed to haggle over overpriced coffee. Any company that expects you to pay their price "take it or leave it" and then finds themselves persistently losing money, shouldn't be bellyaching about "cheap" customers. It's not the customers fault when patrons refuse to buy overpriced merchandise.

The status quo is about to change at Barnes & Noble. The company has just been acquired by Elliott Associates/Advisors, a hedge fund. Paul Singer, the well known activist investor and principal at Elliott, has hired a new CEO with a mandate to turn B&N around. Mr. Duant, the new CEO, has a track record for turning a struggling book store chain in Great Britain back into a going [profitable] concern. I suspect Mr. Singer, being the smart businessman that he is, has incentivized Mr. Duant with a generous bonus package award contingent on him achieving certain performance goals; chief among them being to return B&N to profitability.

From my perspective, as a customer and a B&N "Members" cardholder, it's going to be interesting seeing what kind of store coupon discount offers I receive with Mr. Duant in charge. If the store discount offers cease or remain at a piddling 10 percent on items with 60 to 100 percent markups, then I'm through shopping at B&N. If the coupon discounts go back to the 20-30 percent I was receiving, I'll probably buy those three bridge books I'm holding back on.

As far as my being a "cheap" PIA customer from hell, the local B&N store manager doesn't see me that way. He's very much aware of all the books I've bought in his store. (He's personally sold me a lot of them!) He has arranged significant discounts for me in the past - especially on software books. He and I have had cordial conversations about the publishing industry. He is well aware that I'm well aware of the problems and challenges faced by his employer. (I had a discussion with him when the news came out about B&N being acquired by Elliott Associates and Mr. Singer. He is acutely aware that changes are coming ...)

This store manager and I have never had an argument or "haggled" over prices. I bring him a list of books I'm interested in buying, he queries the prices, I tell him what I'm willing to pay, and he tells me whether or not he can close the deal. Sometimes he can, sometimes he can't. On the occasions when he says: "Sorry, I can't do that," I shrug and say nothing. I know, in most of those cases, his hands were tied by Mr. Riggio and the folks up in New York. There's no - and never has been - an angry exchange of words or raised voices or me "blowing my fuse" so to speak. I know he can't be blamed or chastised for carrying out the orders of his superiors. What he usually says, on the occasions when I smile and turn to walk away, is: "Let me know if you change your mind." I doubt if he would say that to somebody he considers a PIA.

Edit: Here's Barnes & Noble's press release announcing their acquisition by Elliott management.

https://www.barnesandnobleinc.com/pr...-barnes-noble/