Since his promotion to CEO of Barnes & Noble in January 2014, Michael Huseby has been preparing the struggling Nook digital media division for sale, but so far no suitors have shown themselves. Huseby should look no further than the world’s largest retailer, Wal-Mart Stores .
Wal-Mart has been steadily investing in and growing its digital businesses and needs to find more ways to compete with Amazon. While Nook has been failing since 2012, it still has underlying assets — a catalog of millions of e-books, thousands of relationships with publishers and suppliers, and a robust self-publishing services business — that would be valuable for a company interested in investing in e-books and would be hard to build from scratch.
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“It is definitely a good idea if Wal-Mart cares about being in the book business or the digital media business long term,” said book publishing consultant Mike Shatzkin. “If that’s a priority for them, acquiring Nook would probably be the cheapest way to ensconce themselves in the game.”
With Nook, Barnes & Noble was once solidly the No. 2 e-book retailer in the U.S., behind Amazon, with a reported 25% market share to Amazon’s 65%. That was in 2012, when Nook revenues eclipsed $900 million and then-CEO William Lynch charted a course to reach $1 billion in annual revenue.
The plan involved Nook continuing to sell more Nook devices in the growing tablet business, as well as selling more e-books on those devices and increasing digital content sales across the board.
Neither of those things happened.
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What’s next for Nook?
Barnes & Noble has said that spinning off Nook as a separate public company is also an option to exit the business. With a consistent track record of losses and declining revenues, it’s not a very good one.
Instead, Barnes & Noble should sell Nook to Wal-Mart.
According to one source who did not want to be named, the big retailer is exploring entering the e-book business. Buying Nook would be an easy and inexpensive way for the company to do so. Wal-Mart declined to comment.
Like many Amazon competitors, Wal-Mart has been trying to expand in digital. It expects its e-commerce sales in 2015 to increase to $12.5 billion after accelerating its digital investments to between $1.2 and $1.5 billion, up from $1 billion in 2014.
While $12.5 billion is nothing to sneeze at, it’s a fraction of Amazon’s projected 2015 revenue, which will eclipse $100 billion. And it’s less than 3% of Wal-Mart’s $473 billion in sales in 2014, which are expected to grow 2% to 4% in 2015.
A Wal-Mart spokesperson said that funds for digital acquisitions would not come from its capital expenditures on digital expansion and pointed out that the company has made 14 e-commerce acquisitions in the past several years.
“We are open to acquisitions if they fit into our enterprise strategy,” the spokesperson said, via email.
Nook “is a nice fit with Wal-Mart’s print book business,” said James McQuivey, a vice president and principal analyst at Forrester focused on the book publishing industry. “They could probably also get it for a decent price.”
To be sure, there are significant risks. In the U.K., retailers Tesco and Sainsbury both launched e-book businesses, but Amazon still has about 90% of the market.
PG says if Big Publishing thinks Amazon is tough when negotiating contracts with suppliers, they’ll gain some perspective on that subject should Wal-Mart enter the ebook business.