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Friday Musings: Should Buy Barnes & Noble and Partner with a Direct Bank

image One of the best things to happen in 20 years of living in northeast Seattle was the opening of Barnes & Noble in our local shopping center, replacing the tired old department store, Lamonts

For this family of readers, the massive, two-store B&N has continued to be a cherished destination for more than a decade. When the boys were young, it was Tuesday night story time (with free fresh-baked chocolate-chip cookies). Later, it was a place to spend their birthday money on new books, music and DVDs. And I’ve personally bought at least a couple hundred items there over the years. 

But I’m also an fanatic and buy most everything I can there nowadays. My wife and I (though not the boys yet) are ebook addicts, reading on our iThings via the Kindle app (note 1).  So, I’m more than a little concerned about our neighborhood Barnes & Noble. Printed books and other media, along with CDs/DVDs, are on their way out, so is there any hope of keeping the neighborhood B&N in business?  

Musing 1: B&N Rescued by
Here’s my dream: Amazon buys Barnes & Noble, perhaps partnering with a major financial services brand (note 2), and turns it into a fully online/mobile channel-integrated super store. Amazon’s major online departments could be recreated within the massive B&N footprint: the book store, of course, electronics, music, movies/TV, toys, home and garden, shoes, and so on.

High-volume goods would be stocked and available for purchase. Consumers could also pick up goods ordered via online/mobile enabling same-day delivery for many items. But the main focus of the store would be self-service online shopping. Shoppers in the shoe department, for example, could see and hold various styles, but would place an order through a mobile app or online kiosk, to get their specific size delivered to the store or their home. The concept would be to showcase a wide variety of items without incurring the costs of holding massive inventory within the store.

Musing 2: Amazon Financial Centers Installed within the Super Stores
Though I’m not a huge fan of branches, they still have their place. Amazon could turn a corner of the store into a financial services center. The center would feature deposit-taking ATMs to handle those pesky checks and would have a financial specialist or two on hand to help customers with mortgages and other high-touch financial needs (no transaction activity, however).

Financial center staffers could also be incented to help drive users to co-branded Amazon loyalty programs with online and in-store sales diverted from credit cards to ACH/debit, saving the company tens of millions in annual interchange. Financing big-ticket items could also create a massive new revenue stream for the retailer.   

While the financial operations could be private-branded under the Amazon name (e.g., Sears), it would probably make more sense to partner with a major direct financial services company such as ING Direct, Citibank, or Schwab, or an international giant such as Standard Chartered, Barclays, or OCBC which would gain a major footprint in the United States with 700+ strategically located mini-branches (notes 3, 4).

It’s not going to happen, Amazon is a Wall St. darling as a pure-play ecommerce company, but for the sake of the neighborhood, I wish it would.


Notes on the the business case (see huge caveat, note 5): 
In this simplistic proposal, I’m ignoring a zillion issues which are beyond the scope of this blog. For example, would existing B&N leases even support Amazon’s product mix? But to an outsider, it looks enticing for the following reasons.

  • B&N is currently valued at less than $900 million and change after a recent run-up after it announced that it was for sale (note 6). In comparison, Amazon’s is worth $62 billion today. As a matter of fact, its market cap has grown $7 bil since I started this post a couple weeks ago, enough to buy seven Barnes & Nobles. Clearly, Amazon could afford it, though whether shareholders would support it is another matter.
  • Merging with B&N would take out one of Amazon’s major competitors, theoretically allowing the company to boost prices. With $25 billion in revenues, a quarter-percent (25-basis point) price increase at Amazon would add $60 million to the bottom line.
  • In-store pickups could help reduce Amazon’s massive shipping expense. 
  • And while B&N isn’t currently generating a profit, it was operating cash-flow positive during the past 12 months (+$120 million).
  • Amazon could partner with other direct commerce companies to spread the risk. The financial services mini-stores alone could bring in $100 million annually assuming a $10,000 per month rent/rev share per location (note 3). And other retailers might also be interested in mini-stores within the big Amazon box: Microsoft, Dell, Sony, HP,, and so on.   

Other notes:
1. While I consume almost all fiction digitally, I still like to buy printed business books to keep on the reference shelf. I find it easier to remember they exist that way. Even my semi-Luddite brother has jumped on the Kindle bandwagon at the new $139 price point.  
2. I mostly added this to justify posting it here. Ironically, this strategy is almost the polar opposite of our Online Banking Report: Creating the of Financial Services originally published in 1998 then updated in 2000 (more recent summary here). 
3. I’m not including another 600+ B&N locations on college campuses, because many of those would not be a good fit for financial services and/or the schools would not allow a competing financial provider on campus.
4. Adding financial stores to Barnes & Noble retail locations could be problematic if the leases prohibit banking operations due to exclusive deals with other banks in the shopping center.
5. Caveat: Although I do have an MBA, my balance-sheet reading skills are quite rusty. And I don’t have an ounce of retailing experience (outside banking), so please realize this is primarily conjecture on my part. 
6. There’s also another billion in long-term debt and other obligations.