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Technology Stocks : barnesandnoble.com (BNBN) -- Ignore unavailable to you. Want to Upgrade?

To: Daniel Simon who wrote (753)	8/6/2000 6:59:20 PM
From: Glenn Petersen	Read Replies (1) \| Respond to of 766

This is one sad puppy. From Forbes: forbes.com BN.com Not A Best Seller By Penelope Patsuris Even a wizard like Harry Potter might be stumped by the slump Barnesandnoble.com is in. The brothers Riggio may have a trick up their sleeves, but that wasn't evident this week as the site's battered shares sunk 30% on its second-quarter earnings report and analysts downgraded the stock. Barnesandnoble.com (nasdaq: BNBN), headed by Chairman Leonard Riggio and acting Chief Executive Stephen Riggio, shouldn't be in as much trouble as it is, regardless of the hard times in e-tailing. The factors impeding many online retailers are not a problem for the No. 2 online bookseller. While cash-burn rates are killing its competitors, the company says it has $356 million on hand, which will last through 24 months of operations, and no debt. While the cost of building a pure-play brand from scratch is becoming prohibitive, Barnesandnoble.com has the strength of 554 nationwide stores behind it. Nevertheless, second quarter sales of $67.4 million were lower than expected, and the site's loss of 27 cents per share exceeded analyst estimates of an 18-cent loss per share. "Expenses were higher than we anticipated because we made a strategic decision to increase spending on new initiatives," says Chief Financial Officer Marie Toulantis. During the quarter the site ramped up its Barnes and Noble University, an online education play; Barnes and Noble TV; and its partnership with MightyWords, a digital content provider that Barnesandnoble.com has a 25% interest in. "We could have made a conscious decision not to do these things so that we could meet our numbers, but you have to manage for the long term," says Toulantis. But Bank of America analyst Tom Courtney sees the site's rising cost of customer acquisition as the root of the company's problems. That number is up from $23 in 2000's first quarter to $28 for this quarter, according to his calculations. As a traditional retailer with an established brand as well as existing customers, Barnesandnoble.com should have an advantage, with the ability to acquire customers faster and less expensively than its peers. "If you have a brand you shouldn't have to spend as much to build awareness," says Goldman Sachs' Anthony Noto, "and you shouldn't have to start from scratch when converting traditional shoppers to online shoppers." Noto says Barnesandnoble.com's increasing cost of customer acquisition may indicate that it's failing to do enough cross-promotion with the brick-and-mortar Barnes & Noble (nyse: BKS). Salespeople at many brick-and-mortar retailers with online arms may be reluctant to refer consumers to their sister Web sites, even if it means getting the customer what they want, because stores are often awarded bonuses according to sales volume. "When stores are paid according to sales performance," says Noto, "they're not inclined to send sales to the dot-com." That makes it a zero-sum game, fostering competition and not cooperation between different venues. Staples (nasdaq: SPLS) is one merchant working to change that. The store encourages offline salespeople to send customers who can't find what they're looking for to the Web site by awarding bonuses according to regional sales, instead of store performance. This way, if a store associate sends a customer home to order something online, that sale is still credited to the associate's region when the ZIP code is entered. Some argue that a taxation issue has tied the hands of both Barnes & Noble entities. Because the stores and the Web site are separate companies--Barnes & Noble holds a 40% stake in the site--working too closely together could mean that the site would have to charge its shoppers sales tax. Currently, electronic commerce is taxable only if an outfit has a physical presence in the same state as the customer's address. This gives pure-plays like Amazon.com (nasdaq: AMZN) a distinct advantage; with just a handful of locations it generally doesn't have to impose sales tax on its shoppers. "Integrating online and offline operations would be the right thing to do," says Cambridge, Mass-based Forrester Research analyst David Cooperstein. "But they won't do it, because they think the tax implications would hurt their business." CFO Toulantis says that over the next several months the two companies will roll out a more aggressive cross-promotion strategy. Regardless, Bank of America's Courtney doesn't buy the argument that this inability to cross-promote is what's goosing customer acquisition costs. "Amazon has no stores and had no brand not too long ago," he says. "But according to my calculations, Barnesandnoble.com's customer acquisition costs were well above 50% higher than the $16 Amazon spent on each shopper this quarter." There's no argument that the Barnes & Noble brand is very strong offline. "And Barnesandnoble.com was one of the earliest 'click-and-mortars' to market," he adds. "So I think what we're learning is that traditional brands don't necessarily translate online." Despite the conventional wisdom to the contrary, the clicks-and-bricks concept seems like a clunker, at least in the case of Barnesandnoble.com.