Financial Strategy for “Barnes and Noble Store”

| November 13, 2020

Questions

Retailing Project Overview of Deliverables – worth 300 points

I.  Introduction – 25 points

Provide a brief history of retailer from inception to present date. Describe the channel evolution, shifts in retail mix, competition, and targeted consumer segment(s).

(1-2 pages)/(1-2 slides) 

II. Retail Strategy – 75 points

Provide an overview of the retailer’s current strategy.  Company mission statement, quotes from industry analysts, company executives, and other sources should be cited within the body of the paper and referenced appropriately in the appendix.

(The most recent 10-k filing should be reviewed and referenced-www.sec.gov)

Elements of a retail strategy:

Consumer segment(s) – what measureable aspects define the segment?

Retail Mix – merchandise/svc offerings, pricing, customer service, store/website layout, communication mix, location (brief, high level view)

Sustainable Competitive positioning/ how does the retail mix better serve the consumer segment and is not easily replicated by competitors

(3-5 pages/3-5 slides)

III. Financial Strategy – 45 points

Income statements from the past three years (e.g. 2014-2016) should be reported in a side by side comparison. 

Example:

YEAR                         2014    2015    2016 (or most recent last three years published)

Net Revenues

COGS

Gross Margin

Operating Expenses

 (line items reported)

Net Profit (before/after taxes)

A brief discussion of the trends in numbers and how they relate to implementation of strategy, shifts in focus, expansion efforts etc. should be highlighted.  Is the retailer pursuing a profit margin or asset turnover management path?

Other related figures that are also applicable include comparable store sales growth, sales per square foot, growth in sales and profits (see Exhibit 6-10 for other examples).

(Two pages + graphs, spreadsheet figures/2-3 slides)

IV. Store Channel – 55 points

Describe the retail mix/location/and segment(s) that shop at thischosen location

Evaluation of the execution of the retail mix

(Guidelines for development of attribute matrix will be provided)

Basis for evaluation/scores – specific experiences, observations should be used to support scores for each aspect.

V.  Online Channel(s) website/app – 55 points

Highlight key differences in the retail mix/location/segment(s) served

Evaluation of the execution of the retail mix

(Guidelines for development of attribute matrix will be provided)

Basis for evaluation/scores – details to support experiences, observations should be used to support scores for each aspect.

VI. Recommendations – 35 points

Based upon the overall execution of the retail mix, customer segments served, and competitive environment, what changes/shifts/enhancements would you recommend to better position the retailer to meet consumers emerging needs in a way that effectively competes in the marketplace?

Presentation and report quality -10 points – quality/time management

Report is bound, has a table of content, pages are numbered, sources are cited and referenced, graphs/tables are clear and easy to read.

Slides are visually attractive, easy to read, team members present well and present within the time frame allotted.

Overall comments:

Answer

Financial Strategy for “Barnes and Noble Store”

Table 1. Past Three Years’ Income Statement

 2015 ($)2016 ($)2017 ($)Trend in 2016 relative to 2015Trend in 2017 relative to 2016
Net revenues   4,297,108,000.00   4,163,844,000.00   3,894,558,000.00-3%-6%
Cost of sales   2,871,184,000.00   2,836,547,000.00   2,682,356,000.001%5%
Gross profit   1,425,924,000.00   1,327,297,000.00   1,212,202,000.00-7%-9%
Gross margin33.18%31.88%31.13%  
Operating expenses   1,335,730,000.00   1,312,641,000.00   1,157,894,000.002%12%
Profit before tax         90,194,000.00         14,656,000.00         54,308,000.00-84%271%
Net profit after tax         36,596,000.00       (24,446,000.00)         22,023,000.00-167%190%
Net profit margin0.85%-0.59%0.57%  

Figure 1. three years trend in income statement items

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Shift in Numbers and Effect of Strategy Implementation and Shifts in Focus

As shown in Table 1 and Figure 1, Barnes and Noble Store’s net revenues dropped for two years consecutively from $4,297,108,000 in 2015 to $4,163,844,000 in 2016 and further to $3,894,558,000 in 2017. This drop represents 3% and 6% in 2016 and 2017 respectively. This decline was attributed to the decrease in the number of stores – 8 and 10 stores in 2016 and 2017 respectively – owing to the challenging retail environment and lower store traffic (Barnes and Noble Store 11). For instance, the closed stores in 2016 led to a decrease in sales by $40.9 million. As a result, the company’s square feet of selling space dropped to 16.7 million in 2017 from 16.9 million in 2016 – in 2015 it was 17.1 million. It, therefore, follows that the sales per square foot were approximately $226,626,000, $238,379,000, and $240,248,000 in 2017, 2016 and 2015 respectively. Despite the shift taken by Barnes and Noble Store to rationalize losses of its NOOK segment and leaving its UK, apps and video businesses, the sales continued to decline. Notably, are the comparable store sales, which dipped by $1.3 million in 2016 and $216.5 million in 2017.

A Profit Margin Path

Barnes and Noble Store is pursuing a profit margin path because it is working very hard to control costs and expenses, and maximize revenues. As noted by its management in the 2017 annual report, the company remained committed to right-sizing its cost structure following the deepening sales trend (Barnes and Noble Store 11). It has continued to rationalize the losses made by its digital segment, and in 2016, it managed to cut NOOK’s losses by 30% (Barnes and Noble Store 2). In addition, its change in focus by leaving the poorly performing markets  and opening new concept stores further shows its goal of maximizing profits. Additionally, in 2017 the management worked very hard to control its operating costs, and managed to reduce them by $137 million. These strategies have made it fairly easy for Barnes and Noble to sustain its profit levels.

On this ground, its trend in costs and profits can be analyzed. As indicated in Table 1, the cost of revenues decreased from $2,871,184,000 in 2015 to $2,836,547,000 in 2016, and further to $2,682,356 in 2017 leading to a relatively stable gross profit margin of 33%, 32% and 31% over the same period respectively. The focus to create efficiencies and cut costs saw the company post operating expense and depreciation of $1,335,730,000 $1,312,641,000, and $1,157,894,000 in 2015, 2016 and 2017 respectively. In other words, there was a cost saving of 2% in 2016 and 12% in 2017. The profit before tax decreased in 2016 by 84%, but improved in 2017 by 271% as shown in Table 1. A similar trend was recorded by the net profit after tax that dropped by 167% in 2016, but improved in 2017 by 190%.

Works Cited

Barnes and Noble Store. 2016 Barnes & Noble annual report. Fiancial report. Lyndhurst, NJ: Barnes and Noble Store, 2016.

—. 2017 Barnes & Noble annual report. Financial report. Lyndhurst, NJ: Barnes and Noble Store, 2017.

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