Help Make Barnes and Noble Successful - Case Study Example

?Introduction The of the consulting firm I founded is NextGeneration Consulting. The firm successfully entered the marketplace in The newest client the firm landed has requested an analysis of the firm Barnes & Nobles. Barnes & Nobles is a publicly traded company whose stocks are openly traded in the New York Stock Exchange (NYSE) under the symbol BKS. The price of the BKS stocks as of February 14, 2013 was $13.13 (Yahoo, 2013). Books have existed for thousands of years, but the commercialization of the product exploded during the 20th century. The academic community relies on books as a key tool in the learning process. The report will include several parts including a company background, financial analysis, and an in-depth analysis of the change initiatives that the firm must implement to adapt to the market challenges of the 21st century. Company Background Barnes & Nobles was acquired by Leonardo Riggio in the 1970s. The first Barnes and Nobles stored operated by Riggio was located in Manhattan. The stored was transformed by its new owners into the largest bookstore in the world. The firm has always been at the forefront of innovation. “In 1974, Barnes & Noble was the first bookseller in America to advertise on television” (Barnesandnobleinc, 2013). Barnes & Noble throughout its history has always adapted well to market changes and it has increased its market share in the book industry. The company in its early years expanded its sales by selling books through catalogs. The firm began to sell books online in the late 1980s. A key acquisition for the company was buying Sterling publishing in 2003. Sterling publishing has over 5,000 titles in print including educational resources, children’s picture books, puzzles and games, adult fiction, craft and photography, cookbooks, self-help and classics (Barnesandnoblesinc, 2013). The firm became the world’s largest publisher of digital books in 2009. During 2011 the company had a market share of 26% to 27% in the e-book marketplace (Dignan, 2011). The firm owns over 600 book stores located in college university campuses across the 50 states nationwide. Financial Analysis In fiscal year 2011 Barnes & Noble generated revenues of nearly $7 billion. The firm had net losses of $73.92 million in 2011 (Annual Report: Barnes & Noble, 2011). The previous year the firm achieved a net income of $36.67 million. One of the reasons for the bad performance of the company is the fact that cost of good sold and occupancy increased by 26%. The net margin of the firm was -1.06%. The earnings per share (EPS) of the firm in 2011 was -$1.31. Barnes & Noble paid dividends per share of $0.75. At the end of 2011 the firm had total assets of $3.60 billion. The total assets of the firm in 2011 went down by 3.03%. The current ratio shows the ability of a company to pay off its current debt. A good current ratio is above 1.0. In 2011 the current ratio of Barnes & Nobles was 1.01. The company is in a good position to pay off its current debt. The return on assets (ROA) of the organization in 2011 was 2.06%. This ratio shows how effective a company has been at generating revenues from its total assets. The return on equity (ROE) of Barnes & Noble in 2011 was 9.02%. “When compared to the return on total assets, measures the extent to which financial leverage is working for or against common stockholders (Garrison, Noreen, 2003, pg.784). The inventory turnover ratio shows how many times the company has sold its inventory during the year. Barnes & Noble had an inventory turnover ratio of 3.78 in 2011. Change Initiatives The company must implement changes in its corporate strategies to achieve the sales expectations of its shareholder. The goal of the company should be to maximize shareholders wealth. A new strategic approach for the company is to change its strategy to expand its retail sales from the domestic marketplace into the international landscape. The firm has an expertise in how to run bookstores in college marketplace. The company should seek a similar strategy in foreign countries. The target market for the company is the continent of Europe. The region has political stability and the economies of most countries have high gross domestic products. The firm must become adept at recruiting new employees in the European labor market. The recruiting efforts of the firm are going to be outsourced to an employment agency. The plan would start with the launch of the brand in five college campus communities in the United Kingdom. The U.K. has a very strong economy. In 2012 the gross domestic product per capita of country was $36,600 (Culturegrams, 2013). The population of the United Kingdom is 63.05 million. The British people idolized American culture. The bookstores would have literature from Europe and America as well as books written by authors from all over the world. After one year of operations the second phase of the plan is to open one book store in a college community in each of the 27 member nations of the European Union (State, 2013). The third phase of the plan is to open 120 to 150 more locations across Europe. A second major change initiative for the company is to introduce a new publishing house dedicated solely to selling books made of banana ply paper. Banana ply paper is a new innovation in the paper industry. The company Papyrus Australia is the owner of patent for the product. The source of the raw material is the trunk of banana trees. Currently banana trucks are a waste product. Banana trees are a renewable source. The largest supply of banana trees at 53% is the continent of Africa. This product could be used to produce books made of banana ply paper. The books will be of superior quality since banana ply paper has a tensile strength 40 higher than traditional paper. Barnes & Noble should establish a strategic alliance with Papyrus Australia. A third change initiative that the company should implement is to change the organizational culture to become more adaptive to the needs of the customers. The firm must invest money in order to provide its employees training and development opportunities to improve their customer service skills. The employees must become more proactive. Keeping the lines of communication open between the managerial staff and the workers is very important. A fourth organizational change the firm must implement is to further expand its market share in e-books. The goal of the company is to achieve a market share higher than 50% within a four year span. To achieve that goal the market share of the company must increased by 6% yearly. Selling e-books has many advantages such as elimination of inventory, lower cost, and higher profit margins. Once the book is written the electronic file can be sold and then delivered instantly via a downloadable link. This process is virtually free. The company has to improve its capabilities of selling digital books. A new marketing task force will be assigned the task of increasing the sales of e-books at Barnes & Noble. The e-book marketplace is forecasted to reach $5.2 billion by the year 2016 (Wolf, 2011). Conclusion Barnes & Noble has to make major changes to its operation in order to improve the financial performance of the company. During 2011 the firm had net losses of $73.92 million. The firm has not adequately assessed its cost structure which led to the losses. A way for the firm to increase its profitability is by lowering its cost of goods sold and by increasing its gross margin. Gross margin is a broad measure of profitability. E-books are one of the hottest products in the industry. The sales of e-books will more than double in the next three years. The current market share of the company is little higher than 26%. If the firm is able to double its market penetration its total revenues during a four year plan will increase by over one billion dollars. The best attributes of e-books is that once written the company does not have any cost to manufacture the literature. An e-book written in a format such as PDF can be downloaded free of charge. To achieve the desired market growth the firm will assign a marketing task force. The task force will come up with online sales strategies to boost the volume of e-books sold by the company. The firm has to create new business lines to increase its revenue stream. It is imperative for the task force to use the latest online marketing techniques to increase the sales of Barnes & Noble. Forming an alliance with Papyrus Australia will enable the company the ability to sell books made of banana ply paper. These books are of superior quality and they are a green product. The firm can charge a premium price for these books which will increase the gross margin of the company. Despite the recent losses of the firm the long term outlook of the company is bright. References Annual Report: Barnes & Noble (2011). Retrieved February 14, 2013 from http://www.barnesandnobleinc.com/for_investors/annual_reports/2011_bn_annual_report.pdf Barnesandnobleinc.com (2013). Our Company. Retrieved February 14, 2013 from http://www.barnesandnobleinc.com/our_company/our_company.html Culturegrams.com (2013). United Kingdom. Retrieved February 14, 2013 from http://www.culturegrams.com Dignan, L. (2011). Barnes & Noble: Nook market share, sales surge, but so do loses. Retrieved February 14, 2013 from http://www.zdnet.com/blog/btl/barnes-and-noble-nook-market-share-sales-surge-but-so-do-losses/51092 Garrison, R., Noreen, E. (2003). Managerial Accounting (10th ed.). Boston: McGraw-Hill Irwin. State.gov (2013). Members of EU. U.S. Department of State. Retrieved February 14, 2013 from http://www.state.gov/p/eur/rt/eu/c12191.htm Wolf, M. (2011). E-book market forecast to hit $5.2 billion as the book industry burns. Retrieved February 14, 2013 from http://gigaom.com/2011/12/02/e-book-market-forecast-to-hit-5-2b-as-the-book-industry-burns/ Yahoo.com (2013). Barnes & Noble Inc. (BKS). Retrieved February 14, 2013 from http://finance.yahoo.com/q?s=BKS&ql=1 Read More