Barnes & Noble, Inc.

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Barnes & Noble, Inc.

122 Fifth Ave.
New York, New York 10011
U.S.A.
(212) 633-3300
Fax: (212) 807-6033

Public Company
Incorporated: 1894 as C. M. Barnes Company
Employees: 15,000
Sales: $1.08 billion
Stock Exchanges: New York
SICs: 5942 Book Stores; 5961 Catalog and Mail Order Houses; 6719 Holding Companies Nee

Barnes & Noble, Inc. operates the largest chain of book superstores in the United States. The company revolutionized book selling by introducing giant, supermarket-style stores with deeply discounted books in the 1970s, and by 1994 it operated more than 200 such superstores across the country. Barnes & Noble is also the second largest operator of mall bookstores, running the well-known B. Dalton chain, and Scribner’s and Doubleday Book Shops. Barnes & Noble is a leading supplier of books through mail-order catalogs as well. The company sells discounted publishers’ remainders and imported books through its catalog, as well as books under its own “Barnes & Noble Books” imprint.

The Barnes family’s history in the book business started in 1873, when Charles Montgomery Barnes went into the secondhand book business in Wheaton, Illinois. Barnes soon moved to Chicago, selling new and used books. By 1894, Barnes’ firm, reorganized as C. M. Barnes Company, dealt exclusively in school books. In 1902, C. M. Barnes’ son, William R. Barnes, became president of the firm, and he continued the business in partnership with several other men. The younger Barnes sold his interest in his father’s company in 1917, when he moved to New York. In New York, he acquired an interest in the educational bookstore Noble & Noble, which was soon renamed Barnes & Noble. Though Mr. Noble withdrew from the business in 1929, the name Barnes & Noble stuck.

The company’s early business was wholesaling, selling mainly to schools, colleges, libraries, and dealers. Barnes & Noble entered the retail textbook trade somewhat reluctantly. A report in College Store magazine recounted that single book customers were tolerated, but that the store’s counters and display shelves functioned as barricades against their encroachment. Eventually the store took a building on Fifth Avenue that included a small retail space. The public then “launched a campaign of book buying that soon banished all doubt as to the need for a general retail textbook house in New York.” Barnes & Noble opened a large retail store on Fifth Avenue and 18th Street, and this became the company’s flagship. The quarters were enlarged and remodeled in 1941, and the store set the standard for college bookstores.

Barnes & Noble served the students of hundreds of New York City schools and colleges, and the store had to operate at top efficiency to accommodate the rush for textbooks at the beginning of each semester. In 1941, the store instituted a “book-ateria” service that was soon plcked up by other college bookstores. A clerk handed the customer a sales slip as he entered the store. Purchases were recorded on the slip by one clerk, money taken by another, and wrapping and bagging done by another. Barnes & Noble installed a telephone service that was quite advanced for the time, with five lines manned by specially trained staff. The New York store was also a pioneer in the use of “Music by Muzak,” with the piped-in music interrupted at twelve-minute intervals by announcements and advertising. Staff during the textbook rush season sometimes numbered over 300, and the store boasted a stock of 2 million books.

The successful retail division continued alongside Barnes & Noble’s original business of wholesaling to schools and libraries. The company also ran an import and an export division, an out-of-print book service, and published several series of non-fiction books, including the College Outline Series of study guides. In 1944, Barnes & Noble began putting out children’s educational books after it took over the publishing firm Hinds, Hayden & Eldredge. The company also opened branches in Brooklyn and Chicago, and operated an outlet for used books and publishers’ remainders called the Economy Book Store.

Barnes & Noble operated on a grand scale from the 1940s onward. Its wholesale textbook division bought used books from around 200 campus bookstores all across the East and Midwest. The flagship retail store earned a place in the Guinness Book of World Records in 1972 as “the World’s Largest Bookstore,” and Barnes & Noble also claimed this store did the largest dollar volume of any retail bookstore in the country.

But Barnes & Noble began to grow in more ways when it came under the sway of a new young owner, Leonard Riggio. Riggio began his stellar career in the book business at age eighteen, when he was a poorly paid clerk at the New York University bookstore. Riggio initially studied engineering at night at the university, and in some sense he was unprepared for working with books. He recalled being embarrassed by a customer who asked for a copy of Moby Dick —Riggio had never heard of it. Nevertheless, he caught on to book selling like no one else. In 1965, when he was only 24, Riggio borrowed $5,000 to open his own college bookstore, the Waverly Book Exchange. Though his store was only one-eighth the size of the official NYU bookstore, he soon rivalled his old employer’s sales. He offered exceptional service to his student customers, airlifting text books to the store if necessary. The success of the Waverly Book Exchange allowed Riggio to buy or open ten more college book stores over the next several years.

When Leonard Riggio set his sights on Barnes & Noble, the venerable bookstore was in a slump. President John Barnes, grandson of the founder, had died in 1969, and the retail and wholesale divisions of the company were purchased by a conglomerate called Amtel, which made toys, tools, and various other products. Business declined under the new management, and Amtel decided to sell. In 1971, Leonard Riggio purchased Barnes & Noble from Amtel for $750,000. He quickly changed the names of his ten other bookstores to Barnes & Noble, and revitalized the old Fifth Avenue store.

The new owner made Barnes & Noble an educational bookstore with a broader focus that included all kinds of how-to and non-fiction books. Riggio believed that more people read books for information than for entertainment, and he changed the set-up of the flagship store to give customers easier access to books they might want. He organized the stock into new, more specific categories, for example dividing the traditional category of philosophy into yoga and mysticism. Other sections of special interest books included cooking, Judaica, handyman books, study aids, and dictionaries. Riggio also opened a special children’s section in the Fifth Avenue store, which, like the adult sections, emphasized educational books.

Under Leonard Riggio’s management, Barnes & Noble expanded to include stores in New York, New Jersey, and Pennsylvania. By 1976, the company leased and operated 21 campus bookstores, and the combined retail and wholesale divisions brought in $32 million in sales. His early success led Riggio to gamble on a new kind of bookstore—the book supermarket. Across the street from the old Fifth Avenue Barnes & Noble, Riggio opened a giant sales annex that sprawled over three buildings. All books at the annex were discounted between 40 and 90 percent, even new books and best-sellers. Shoppers spent hours piling bargains into shopping carts, as Riggio explained to Publishers Weekly that he had “set the customer free in an unintimidating atmosphere to roam over a vast space.” The prairie-like annex included fiction, textbooks, children’s books, reference books, art books, and gift books. Corners were devoted to books on special topics ranging from Latin America to transportation, and huge black and yellow signs directing customers to different categories could be read from 176 feet away. Riggio claimed that most of Barnes & Noble’s customers did not intend to read the books they bought, and the casual, warehouse atmosphere of the sales annex was geared to the everyday shopper, not the scholar or bibliophile. It was a marketing technique that worked brilliantly.

Barnes & Noble’s thriving sales encouraged the company to grow and innovate. In 1979, Barnes & Noble acquired a chain of retail stores called Bookmasters, and then bought up Marboro Books, Inc., a remainder company with discount retail outlets. Barnes & Noble operated a chain of Supermart Books which serviced drug store and supermarket book departments, and ran the Missouri Book Co., selling used college textbooks. Barnes & Noble also more than tripled its college store leases in the mid-1980s, increasing from 40 in 1983 to 142 in 1986.

Total sales grew to about $225 million in 1985, and the next year Barnes & Noble made a major acquisition. For a price estimated at around $300 million, Barnes & Noble bought B. Dalton Bookseller, a bookstore chain with 798 outlets, from Dayton Hudson Corporation. B. Dalton was the second-biggest chain bookstore, behind Waldenbooks, and its sales were estimated at $538 million in 1985. The acquisition put Barnes & Noble in the second place spot, and the company continued to acquire chains. In March of 1990, Barnes & Noble purchased an upscale chain of 40 bookstores, Doubleday Book Shops, for an estimated $20 million. A few months later, the company became sole owner of a Texas and Florida chain of discount bookstores called Bookstop.

Barnes & Noble had used the name BDB Corp. for the holding company that owned Barnes & Noble, Inc., B. Dalton, and its other businesses. Leonard Riggio was the majority owner, and had a financial partner in a Dutch conglomerate called Vendex. The name of the holding company changed back to Barnes & Noble, Inc. in 1991, and the company re-acquired rights to publish under the Barnes & Noble name. These rights had been sold after John Barnes died in 1969.

Barnes & Noble, Inc. had grown enormously in the 1980s through acquisitions. The company embarked on a new growth strategy in the 1990s, opening new “superstores” at a breathtaking pace. The superstores differed somewhat from the earlier Fifth Avenue “book supermarket” Barnes & Noble sales annex. The superstores were large, carrying as many as 150,000 titles, or six times the size of a typical mall bookstore, but they had amenities such as coffee bars and children’s play areas, and were designed to be pleasant public spaces where people would browse, read, and mingle. Wide aisles and scattered chairs and benches encouraged customers to linger, and local managers had the autonomy to arrange poetry readings and puppet shows. The discounted (usually by ten to 40 percent) superstore stock was vast, yet the space was as posh and inviting as that of many independent bookstores. Barnes & Noble operated 23 superstores in 1989. Three years later there were 105, and the company intended to open 100 more each year through 1994. On one day in August 1992, Barnes & Noble opened five superstores, and two months later opened three more.

The superstores cost more than $1 million a piece to build, outfit, and stock, and Barnes & Noble lost money by opening so many so quickly. Though sales for 1991 were more than $892 million, Barnes & Noble, Inc. posted a loss of close to $8 million that year. But overall sales continued to rise, and the superstores contributed some impressive revenues. Eighty percent of new superstores contributed to company profits in their first year of operation. A Barnes & Noble superstore on the Upper West Side in Manhattan was expected to bring in $12 million in sales its first year, but it proved so popular with New Yorkers that it actually brought in between $ 16 and $ 18 million. The average superstore brought in a much more modest $3.5 million. The superstores generated on the average twice the sales of mall bookstores, and in 1992, superstore sales rose by 114 percent.

Other booksellers complained about Barnes & Noble’s rapid growth, believing that the market could not hold so many bookstores. But Leonard Riggio went on the record repeatedly to dispel claims that his growing chain was predatory. The amount Americans spent on books rose a hefty 12.5 percent in 1992, and Riggio believed the market would continue to grow. But the expansion of Barnes & Noble prompted competitive chains to build more stores too. Waldenbooks made planned to more than double the size of its mall stores, from 3,000 square feet to 6,000 to 8,000 square feet. Borders Inc., a chain of superstores owned by Kmart, planned to open two new stores a month in 1993.

With its growth so enormous and debt so high, Barnes & Noble, Inc. decided to raise cash by selling its stock to the public. An initial stock offering in 1992 was postponed because of adverse market conditions. Wall Street analysts had been skeptical of the company’s ability to sustain its profits, but a year after the first offering was withdrawn, superstore sales had continued to climb. These sales accounted for almost half the company’s total revenue, up from 26 percent in 1992, and the company seemed more solid. Barnes & Noble stock began trading on the New York Stock Exchange on September 28, 1993, and demand was so high that brokers were unable to purchase as much as they wanted. The stock had been expected to sell for around $17 a share: it closed at $29.25 its first day. Leonard Riggio retained about a third of Barnes & Noble, Inc., and another third was controlled by his Dutch partner Vendex.

For the fiscal year ending in January 1994, Barnes & Noble reported an 87 percent gain in revenue at its superstores. The textbook area of the company continued to be quite profitable too, and the company ran almost 300 college bookstores across the country. Children’s books also sold very well, and Riggio made plans to expand the square footage of the Barnes & Noble Jr. stores that were a part of the superstores. The growth of the Barnes & Noble chain under Leonard Riggio had been spectacular.

In spite of critics’ fears that the company’s rapid expansion would saturate the book market or set off vicious wars for market share, Barnes & Noble seemed able to keep abreast of what the public wanted in a book store, and supply just what was needed. The discount sales annex had been a radical step, eliminating the high-brow atmosphere long associated with bookstores. The superstores managed to combine the savings and huge selection of the discount store with an environment tailored equally well to book lovers, socializers, and bargain hunters. In many ways Barnes & Noble set the standard for its competitors from the early textbook store to the present day, by innovating in areas such as store design and marketing of software, and by its pioneering efforts such as providing books for children with disabilities, and offering a literary award to first-time novelists. Barnes & Noble faces increasing competition from independent booksellers and other chains, as these seek to duplicate what Barnes & Noble has done, but the company is used to setting the pace and will undoubtedly find creative solutions to new problems that lie ahead.