In the past several days and weeks, there has been a lot of coverage in the press about the decline in retail.
While people have been talking about the decline for a lot longer than the past few weeks, but Riggio is in full spin to excuse B&N’s latest sales slippage - 8% down year-on-year in the third quarter, which took in the crucial Holiday season.
He begins with a wider thesis about the shift in the nature of the retail industry, with the negative impact of e-commerce on the B&N business model, before looking to the election of Donald Trump as President as an event that’s stopped people buying books.
The argument begins with a claim to have seen what’s happening coming years ago:
Some [people] basically think they see retail going away. I don’t. However, for the past eight or 10 years, I’ve predicted and we are witnessing a major shift in the way retail works and the type of stores that need to be opened, and the shifting demographics of retail and the shift in traffic patterns. So I’m not alone in concerns about the retail world, and we certainly are not alone as a retailer as we experience what has been happening of late.
The rise of e-commerce and a conspicuously unnamed competitor - guess who? - has had a negative impact on B&N, he acknowledges, but that’s not the only reason for the firm’s current problems:
We all know the effect of e-commerce since its start about 20 years ago. This is a long-term effect that affects retailers, continues to affect us, but the effect of e-commerce and the major bite e-commerce has taken has abated somewhat. So I don’t think that what we’re experiencing today is any shift or any major event which leads sales to go down. It’s part of a long-term trend that we’ve long experienced.
Now in our particular case, there is a long-term effect of the so-called digital revolution. Had we made a prediction of where retail book selling was going four years ago, it was pretty clear that if the sale of devices and the sale of ebooks continued to escalate as it was, there would be no future in retail book selling. We also know that that increase in sale of digital products has abated and possibly, very possibly, might be abating. We know this by our numbers and we know it anecdotally as we speak to people, many, many customers who have come back to books because they prefer reading books and also owning books, as opposed to owning just a dot on their site.
An asset here is the B&N retail real estate and the experience of going into a book shop, argues Riggio:
Obviously e-commerce affects sales at Barnes & Noble to the extent that we lose sales to our huge e-commerce competitor, but I’d like to suggest that this is not a zero sum game. It’s very clear that people visit our stores, and in visiting our stores we become a showroom which in effect creates online sales.
At the same time, a visit to a website, either ours or others, has the effect of stimulating store traffic. Someone could be doing a search and a book pops up, the book could pop up at another e-commerce retailer or us, and the customer’s reaction would be, ‘I’d like to go to the store and take a look at it’. So e-commerce also helps our store sales. Now, whether it’s more negative or positive is something that needs to be considered, but it’s not a zero sum game.
OK, so that’s a fair enough thesis. So why has B&N seen sales decline so badly? Riggio puts it down to people not getting out and about in their cars or walking down the street and that other retailers aren’t pulling in the footfall around B&N:
Our sales are suffering because of traffic declines, some due to the fact that people are not coming to us, but we think more due to the fact that there are less cars in the lot, there are less pedestrians walking by. Our retail co-tenants have had sales declines and traffic declines, so that where years ago one retailer’s traffic increases would be the benefit of the others, what we are experiencing today is that the decline of one increases the decline or causes the decline in others.
Then there’s the Trump factor. This is a theme that Riggio alluded to several months ago when the US Election campaign was in full sway. It’s an idea he returns to now when he talks about what he calls “this particular unprecedented election cycle and post-election goings-on”. Essentially his argument is that books need media airtime and that has been hogged by both the election campaign, the unexpected results and the subsequent shenanigans:
There is a profound effect of media on book sales. Many, many books get their start in the media, the newspapers and on television. There are precedents for this throughout the course of our history, when the media becomes preoccupied over a sustained period.
The book authors and the book subjects stop appearing on the evening news programs, certainly the commentator programs, great shows like CBS Sunday Morning, and even one of the biggest drivers of book sales, which is the morning news shows, the morning entertainment shows. All the talk now is about politics, and books have been starved of any presence there. We see cookbooks and health books and fashion and dieting - so, so many books become explosive as a result of their exposure on TV and in the newspapers. That has all but dried up.
And things aren’t getting any better, he concludes:
I was one to think that this would go away after the election, and it did just a little bit and our sales started to look like they were righting themselves and it seemed like people were going back to their normal lives. Then we had the inauguration and it started again, and even more fiercely than we had experienced before. So what we’re looking at, and I’m sure other retailers are though I haven’t seen much reporting on it, what we’re looking at is a major difference between our sales in the daytime and our sales at night. The conclusion that we could come to and we believe is the case is that people are spending their time at night watching [TV]. There’s no question that the viewership of Fox News and CNN and MSNBCs of the world is way, way up again, subscription to the Times, as you know, way, way up. People are all engaged in this new government and all of the controversies that come with this and the war between the parties.
In other words, people aren’t interested in buying and reading books when there’s an early morning Twitter-storm from the White House to be read about online or in newspapers or spin-doctors and pundits to get annoyed at on TV. That’s having an impact on purchasing, with nighttime sales around 5% lower than daytime ones:
I submit that it’s due to the fact that people are spending time at home, rushing home, eating takeout food at home, and they’re watching the various events. So when we isolate some of those events, like the debates - debates in the past would get 20 million viewers; debates today get 90 million viewers, certainly in this cycle. So people are home watching the debates, and for all of these kind of news hits that we get, major announcements by the President, all these controversies that come up, our sales are suffering in the evening hours.
If that theory is credible - and given the volatile nature of the current administration and the febrile nature of political debate today - that would appear to be a long-term problem that the likes of B&N can do nothing about. Riggio concludes:
I would assume at some point here, Americans go back to living their lives, that this ongoing no-end debate will finally subside. I was wrong, however, in expecting that the debate would subside soon after the November election - it didn’t. I thought it would subside five days after the inauguration - it has not. I expect us to be coming out of this slump, as it were, but I can’t predict the day or the month, the week or the month that this would happen.
Personally I’d rather read a good book than watch the latest Trump Twitter-storm being pored over by news anchors, pundits and Kelly Anne-Conway, so I’d be more inclined to grab a coffee in B&N than not. I’m not entirely convinced by Riggio’s argument therefore that it’s politics that’s stopping people popping in to buy a book.
I agree with him entirely on the ‘bookshop experience’. Wandering around a book store is something I enjoy and something that I will particularly do around Christmas, looking for gift inspiration. But the reality is that if I know a particular book is coming out that I will want to purchase, I’m off to pre-order at the “huge e-commerce competitor”. That’s where B&N’s real problems lie and getting to grips with how to counter that would seem to me to be the best use of management time.