Should Barnes & Noble rethink its supply chain?

From Mike Shatzkin:

About 25 years ago, Ingram was benefiting from a big buildout of America’s bookstore network. Borders and Barnes & Noble were both opening new stores — big stores — at a rapid rate. Ingram hit a mother lode delivering “store opening assortments” and then, at least in some cases, doing the stock replenishment for the first 90 days.

The stock for the store opening cost the retailer more that way because Ingram couldn’t offer the discounts that publishers would give the stores for direct orders. But getting the opening stock delivered by store section, ready for shelving, and then covering the entire breadth of inventory for reorders across publishers that would also arrive consolidated rather than piecemeal, was worth a couple of points of margin.

Around this same time — 25 years ago — Jeff Bezos was using Ingram’s superior service to build Amazon.com in an industrial building in Seattle, in the same-day service zone for Ingram’s Roseburg, Oregon, warehouse.

Consolidation was the order of the day. Borders and Barnes & Noble were building out store networks that clearly threatened smaller chains and independents. (They would all also be hurt by Amazon, but that would take a few years to become obvious.) Publishers were also consolidating. (Random House and Bantam Doubleday Dell were the big merger of the late 1990s.) All of this threatened Ingram’s basic business model, which was built on being an efficiency-creator between many publishers selling to many bookstore customers.

But the efficiency of centralized supply was also clearly demonstrated to the chains, so B&N saw value in acquiring Ingram to own their own supply chain, presumably opening up the possibility of buying from publishers at the higher discounts normally afforded to wholesalers. It took two years for the deal to fall through because of federal government concern about “monopoly”. That meant Ingram had to start rethinking the future of their company.

And it meant Barnes & Noble would build its own warehouse network to provide more efficient resupply to its own stores that would give them a competitive advantage over Borders, their primary competitor. Borders, of course, was thinking along similar lines.

. . . .

And now things have changed again. B&N’s viability is threatened by the movement of book sales from physical retail to online retail. New ownership is now challenged to find new paths to commercial viability. The biggest opportunity may be a return to the past, once again turning over the supply chain to Ingram.

As sales of books in the retail channel decline, as they have and will continue to, the per-unit cost of maintaining a proprietary supply infrastructure just keeps rising.

. . . .

On top of that, the “job” of the resupply infrastructure for a retail chain has become much more challenging. When B&N was building out its capabilities at the turn of this century, the number of possible titles was probably not even a million and many of their stores carried over 100,000. Now there well over 10 million titles available through Ingram’s print-on-demand database plus nearly a million more in warehouse stock (which includes most of what is new and sells the fastest), and the retail stores carry a third or less than they did back then. The more that ratio shifts, as what each store carries is a smaller and smaller fraction of the possible universe, the more expensive it is to maintain your own supply chain.

. . . .

James Daunt, the new head of B&N, had no such option when he was rebuilding Waterstones, the UK chain he previously managed. There is no wholesaling operation in the UK with comparable ability to supply the breadth of titles Ingram does. But one imagines that Daunt sees every day what it is costing him to keep operating his distribution centers. One also imagines he also feels a need to free up capital on a daily basis.

Link to the rest at Mike Shatzkin

PG suggests that Mike’s post highlights just one of Barnes & Noble’s many problems.

The continued growth of Amazon and other online retailers (Walmart has been spending a lot of money on its online operations for several years and may have finally figured it out) is a huge indication that US consumers are perfectly happy with buying a lot of things online.

Large and small grocery chains have started services that allow online shopping with the bags of bananas, Doritos and Coke delivered to their car trunk or home. If there was ever a commodity that a great many observers thought would never go online, it was produce sales where shoppers have traditionally eyed and squeezed the fresh fruits and veggies before they selected the perfect cucumber.

Of course, each copy of a book is the same (down to the electron level for ebooks) and online information and opinions about various books on offer is enormous. Plus text messages and email make it effortless for Bev to share her book raves and rants to her friends who like to read the same sort of things she does.

PG contends that fewer and fewer feel they will understand any more about whether a book is right for them by leafing through a hardcover at a physical bookstore. They can look inside on Amazon, find out all far more about whether they’re likely to enjoy it online than they’ll ever get from an underpaid Barnes & Noble clerk (if they can find one when they need one).

Again, there is so much more detailed and reliable information about a new book online than in the bookstore, what does anyone really learn from picking it up and looking at the back cover?

In past decades, PG would sometimes visit a bookstore to kill some time in a pleasant manner. The electronic devices in his pocket or on his desk provide a much better time-killing service than any bookstore he has ever visited.

3 thoughts on “Should Barnes & Noble rethink its supply chain?”

  1. Shatzkin may have something there. Our library system uses Ingram a lot because Ingram provides services that decrease our cost of putting books on the shelves. For example, they ship in call number order. That eliminates a labor intensive step for the acquisitions department. Since labor is by far the biggest cost in circulating books, using Ingram makes sense to our eagle-eyed cost-cutting acquisitions manager.

    I imagine it’s a matter of scale. We could get automated book handling systems that would sort the books for us, but our volume does not justify the expense. But Ingram’s volume probably does easily justify the expense. BTW one of the reasons for getting ISBNs is the ISBN barcodes make automated handling possible.

    Services like Ingram’s help make our per lend cost for paper less than digital. Of course, the biggest driver is the publisher’s high-priced licensing policies, but automation sucks some cost out of paper.

    I have no idea what services Ingram provides to a large store like B&N but I imagine their operations are similar to a library.

  2. I think the franchise idea (fleshed out in the OP’s original post and in the comments section under) makes a lot of sense for a B&N. One of my local grocery stores has a Starbucks corner. How about another one for books? Or combine them?

    In fact, why doesn’t Bezos add to the kiosk areas he now has in Whole Foods markets and include books in addition to the Kindles and tablets that are already on display? (or are books too inexpensive to warrant the real estate?)

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