Barnes & Noble's New Battle Plan for the Cyberbook War-Business Week
The keys to its get-Amazon strategy: Synergy with its bookstores and its ties to Bertlesmann
Barnes & Noble Online is about to launch a new, more aggressive strategy, fueled with $450 million brought by its initial public offering. In their first interviews since the company's May 25 IPO, Barnes & Noble execs laid out to Business Week Online their plan to use the chain's 1,000 bookstores and its alliance with Germany's Bertlesmann to gain ground on Amazon.com.
They have a lot of catching up to do. First into cyberspace, Amazon now outsells Barnes & Noble online by 10-1. The world's largest land-based bookstore chain didn't start doing business on the Web until March, 1997, two years after Amazon's launch. Initially, Barnes & Noble's site suffered from a clunky and confusing design. The online unit went through a couple of management changes, which further hindered its progress. And Barnes & Noble's brick-and-mortar legacy may be an accounting burden (see BW e.biz, 6/29/99. "A Net Bookseller's Biggest Edge Could Be...Bookkeeping"). The site did have one big similiarity to Amazon: Like most Net enterprises, both were (and still are) in the red.
But under new CEO Jonathan Bulkeley, who successfully exported America Online to Britain, the barnesandnoble.com site is now as inviting and easy to use as Amazon's. And in May, it started sending E-mail solicitations to customers -- a longstanding Amazon marketing ploy. Barnes & Noble, though, intends to go far beyond merely aping Amazon. Says Leonard S. Riggio, chairman of both the chain and the cyberseller: "We are revved up here."
ADDING NAMES. Barnes & Noble plans to use its vast array of brick-and-mortar bookstores, which attract 300 million visits annually, to beef up its customer database for online selling. Today, barnesandnoble.com has just 1.8 million names in its database, vs. 8.4 million for Amazon. In the past, little synergy existed between the physical and electronic parts of Barnes & Noble's business. "They have been afraid of cannibalizing their land-based bookstores, but a little bit of that will have to happen," says Nicole Vanderbilt, a senior analyst at researcher Jupiter Communications.
How will Barnes & Noble get more data? By linking the physical stores and the Web site. Starting this summer, customers paying by credit card at bookstore cash registers -- about 60% of total sales -- will have personal, financial, and reading-taste information shunted to barnesandnoble.com. The bookmeisters will offer $5 gift certificates to store customers who fork over their E-mail addresses.
Also starting soon, the online company intends to pitch the 5.5 million members of Bertlesmann's 30 book clubs, either through direct mail, E-mail, or fliers and ads in book catalogs. The pitches will be tailored to different niches. The Science Fiction Book Club, for example, will be offered sci-fi titles beyond the club's monthly fare. "We can expand our members' choices this way," says Markus Wilhem, head of Bertlesmann's English-language book clubs -- and split the proceeds of online purchases with Barnes & Noble. Club members are heavy buyers, averaging 20 books annually. In a bid to take on Amazon's heavy music selection, Barnes & Noble announced on July 7 that it's launching its own online "music store," expanding its paltry 100-tune selection to 300,000 with an emphasis on classical music sales at heavily discounted prices. An Amazon spokeswoman scoffed at that, saying, "We have many, many more offerings than that," but declined to give a number.
INVENTORY SIZE MATTERS. While these moves, if executed well, should be a much-needed tonic for barnesandnoble.com, it's not likely to pull even with Amazon anytime soon. "People don't change their buying habits, and Amazon's lead is tough to surmount," says Henry Blodget, a Merrill Lynch analyst. Blodget estimates that barnesandnoble.com will close the gap with Amazon to 5-1 by 2002, when he thinks both booksellers will finally turn a profit online.
In the near term, Amazon will roar past Barnes & Noble in one key area: size of inventory. That means Amazon will surpass barnesandnoble.com in breadth of offerings and delivery time. Amazon had been using outside vendors, which took longer than its rival, which more often had a title in hand. Last year, Amazon had just 250,000 square feet at its Seattle warehouse, vs. Barnes & Noble's 1 million in a New Jersey suburb. But Amazon has built or leased five more facilities around the country, bringing its storage capacity to 3.5 million by October.
Barnes & Noble had intended to counter Amazon's buildup by buying Ingram Book Group and its 10 warehouses, but that deal fell through because of federal antitrust concerns. So now Barnes & Noble is building two giant facilities. However, they won't be ready till next spring, after the crucial Christmas selling season. Bulkeley insists Barnes & Noble can still compete effectively because it has good links to publishers and can fill book orders quickly.
For all its efforts, the fiercely competitive Barnes & Noble crew appears to be curiously nonchalant about being Pepsi to Amazon's Coke. "Our goal is to be successful, not to beat Amazon," says Chairman Riggio. He sees plenty of sales prospects for everyone, rejecting analysts' projections that book buying will increase by only 2% yearly into the foreseeable future. To Riggio, giving people the convenience of an online alternative can even double their purchases. If true, the final chapter has yet to be written in the online book war.
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