Barnes & Noble, Inc. History

Company Perspectives:

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Company History:

Barnes & Noble, Inc. operates the largest chain of bookstores in the United States. The company revolutionized bookselling by introducing giant, supermarket-style stores with deeply discounted books in the 1970s, and by the late 1990s it operated more than 520 such superstores across the country. Barnes & Noble is also a leading operator of mall bookstores, running the well-known B. Dalton chain, and Scribner's and Doubleday Book Shops. The company also operates, in partnership with Germany's Bertelsmann AG, barnesandnoble.com, one of the top online bookselling operations; both Barnes & Noble and Bertelsmann hold 41 percent stakes in the publicly traded barnesandnoble.com. 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.

Early Decades

The Barnes family's history in the book business started in 1873, when Charles Montgomery Barnes went into the second-hand book business in Wheaton, Illinois. Barnes soon moved to Chicago, selling new and used books. By 1894 Barnes's firm, reorganized as C.M. Barnes Company, dealt exclusively in school books. In 1902 C.M. Barnes's 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-a-teria" service that was soon picked 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 12-minute intervals by announcements and advertising. Staff during the textbook rush season sometimes numbered over 300, and the store boasted a stock of two 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 nonfiction 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 managed 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 18, 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 bookselling 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 textbooks to the store if necessary. The success of the Waverly Book Exchange allowed Riggio to buy or open ten more college bookstores over the next several years.

Arrival of Riggio: 1971

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 nonfiction books. Riggio believed that more people read books for information than for entertainment, and he changed the setup 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 bestsellers. 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 drugstore 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.

B. Dalton Acquisition: 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 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 reacquired rights to publish under the Barnes & Noble name. These rights had been sold after John Barnes died in 1969.

Opening of Numerous Superstores: Early 1990s

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 million and $18 million. The average superstore commanded 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 planned to more than double the size of its mall stores, from 3,000 to between 6,000 and 8,000 square feet. Borders Inc., a chain of superstores then owned by Kmart, planned to open two new stores a month in 1993.

Going Public: 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 bookstore, 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 1990s, 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.

During the 1995 fiscal year, Barnes & Noble opened 97 additional superstores, bringing the total to 358. This growth increasingly led to declining sales for mall bookstores, including the company's own. Barnes & Noble had been closing between 50 and 60 B. Dalton stores per year since 1989, but in late 1995 decided to step up its mall closings. The company took a charge of $123.8 million for a restructuring program aimed at developing a core of more profitable mall bookstores (the charge led to a $53 million net loss for the year). During 1995, 69 B. Dalton stores closed and another 72 were shuttered the following year. At the same time, Barnes & Noble expanded the size of many B. Dalton outlets and opened a small number of new, larger B. Dalton stores each year, seeking to place them in locations that offered increased visibility and higher traffic flow. The new and enlarged units performed better than their predecessors, but all mall bookstores continued to be hurt by competition from nearby superstores. By 1998 Barnes & Noble operated more superstores than mall bookstores.

Entering Internet Bookselling: Late 1990s

In 1996 Barnes & Noble bought a 20 percent stake in Chapters Inc., the largest book retailer in Canada, but sold it three years later. For the fiscal year ending in January 1997, revenues soared past the $2 billion mark, reaching $2.45 billion, an increase of more than 23 percent over the previous year. In early 1997 the company entered the burgeoning market for Internet bookselling through a venture with America Online Inc. (AOL), whereby Barnes & Noble became the exclusive bookseller for the more than eight million AOL subscribers. Later that year the company launched its bookselling web site, barnesandnoble.com. These moves came following the emergence of a new competitive threat, namely Seattle-based Internet bookselling upstart Amazon.com, Inc., which had been founded in 1995 and had sales of $147.8 million by 1997--although it had yet to make a profit. The e-commerce battle between Amazon.com and barnesandnoble.com intensified in 1998 when German media behemoth Bertelsmann AG purchased 50 percent of Barnes & Noble's Internet operation for $200 million, a sizable capital fund for the nascent undertaking. For the fiscal year ending in January 1999, barnesandnoble.com saw its sales increase 381 percent, from $14.6 million to $70.2 million; it also developed an in-stock inventory of 750,000 titles ready for immediate delivery, which the company claimed was the largest in the industry. It also claimed to have the world's largest overall selection, with more than eight million new, out-of-print, and rare books available for ordering. In May 1999 Barnes & Noble and Bertelsmann took barnesandnoble.com public, selling 18 percent of the company and raising another $421.6 million for its war chest. The Internet bookseller's joint venture partners retained equal 41 percent shares in barnesandnoble.com. In July 1999 barnesandnoble.com announced the launch of an online "music store," with heavy discounts of as much as 30 percent off retail prices. Here again, Barnes & Noble was following trailblazer Amazon.com, which began selling music online a year earlier.

In March 1998 the American Booksellers Association joined with 26 independent bookstores in suing Barnes & Noble and Borders. The suit claimed that the large chains had violated antitrust laws by using their buying power to demand from publishers "illegal and secret" discounts. Barnes & Noble said it would vigorously defend this and similar actions that were subsequently brought against it. Antitrust concerns of a different nature scuttled Barnes & Noble's attempt to purchase Ingram Book Group, the largest book wholesaler in the United States, a deal that was announced in November 1998. Barnes & Noble was interested in Ingram for its system of 11 distribution centers spread throughout the country. The acquisition of this system would have cut distribution costs and enabled Barnes & Noble to speed delivery of books to its growing legion of online customers. The acquisition, however, drew strong opposition from independent booksellers as well as from Amazon.com. Federal Trade Commission officials ended up siding with the opponents, and recommended in June 1999 that the agency oppose the deal, having concluded that it would stifle competition in both online and offline book retailing. Barnes & Noble soon withdrew its takeover bid rather than enter into protracted litigation.

At the turn of the millennium, the biggest threat to Barnes & Noble's position as the number one U.S. bookseller was clearly Amazon.com, which in mid-1999 had a market value of $18 billion--more than three times the value of Barnes & Noble and barnesandnoble.com combined. In the Internet-crazed world of the late 1990s, the fact that Barnes & Noble held 15 percent of the total U.S. book market versus Amazon's two percent mattered less than the companies' respective online bookselling shares: 15 percent for Barnes & Noble, 75 percent for Amazon. Part of Barnes & Noble's response to its upstart challenger was to slow its rapid rate of store expansion. In the wake of the failed acquisition of Ingram, it was likely that Barnes & Noble would step up its plans to build new distribution centers from the ground up, to support barnesandnoble.com and potentially give it a competitive edge in its battle with Amazon.

Principal Subsidiaries: Barnes & Noble Booksellers, Inc.; B. Dalton Bookseller, Inc.; Doubleday Book Shops, Inc.; Marboro Books Corp.; CCI Holdings, Inc.; B&N Sub Corp.; B&N.com Holding Corp.; B&N.com Member Corp.

Further Reading:

• "Barnes & Noble, Educational Bookstore, Celebrates 75 Years of Service," Publishers Weekly, February 12, 1949, pp. 901--04.
• "Barnes & Noble Encouraged by Software Sales," Publishers Weekly, October 26, 1984, p. 69.
• "Barnes & Noble Remodels Its Quarters for Efficiency," Publishers Weekly, December 6, 1941, pp. 2090--093.
• "Barnes & Noble's Revitalization Program," Publishers Weekly, September 28, 1970, pp. 69--70.
• "Barnes & Noble Stock Soars," Publishers Weekly, October 4, 1993, p. 14.
• "Barnes & Noble to Buy Doubleday Book Shops," Publishers Weekly, March 2, 1990, p. 8.
• "BDB Corp. Becomes Barnes & Noble Inc. and Plans to Expand," Wall Street Journal, January 9, 1991, p. B5.
• Berreby, David, "The Growing Battle of the Big Bookstores," New York Times, November 8, 1992, sec. 3, p. 5.
• Bhargava, Sunita Wadekar, "Espresso, Sandwiches, and a Sea of Books," Business Week, July 26, 1993, p. 56.
• Breen, Peter, "Fulfilling Dreams: Why Is Barnes & Noble Trying to Buy Ingram Co. for $600 Million?," Chain Store Age, May 1999, pp. 244, 246, 248.
• Cox, Meg, "Barnes & Noble Boss Has Big Growth Plans That Booksellers Fear," Wall Street Journal, September 11, 1992, p. A1.
• ----, "Barnes & Noble Cancels Proposal to Offer Stock," Wall Street Journal, September 30, 1992, p. A4.
• Dugan, I. Jeanne, "The Baron of Books," Business Week, June 29, 1998, pp. 108--12, 114--15.
• Freilicher, Lila, "Barnes & Noble Success Spawns New Mall Stores," Publishers Weekly, August 5, 1974, pp. 43--44.
• ----, "Barnes & Noble: The Book Supermarket--Of Course, Of Course," Publishers Weekly, January 19, 1976, pp. 71--73.
• Furman, Phyllis, "Profits, but Little Respect: Despite Stellar Rise, Barnes & Noble Exec Remains Outsider," Crain's New York Business, February 26, 1996, p. 1.
• Kirkpatrick, David D., "Barnes & Noble's Jekyll and Hyde," New York, July 19, 1999.
• Knect, G. Bruce, "Independent Bookstores Are Suing Borders Group and Barnes & Noble," Wall Street Journal, March 19, 1998, p. B10.
• Labaton, Stephen, and Doreen Carvajal, "Book Retailer Ends Bid for Wholesaler," New York Times, June 3, 1999, p. 1.
• "Literary Supermarket," Forbes, May 15, 1976, p. 49.
• "Marboro Sells Part of Assets to Barnes & Noble," Publishers Weekly, October 29, 1979, p. 28.
• McDowell, Edwin, "Book Chain Refinances, Easing Debt," New York Times, November 18, 1992, p. D4.
• Milliot, Jim, "Barnes & Noble Reports Strong Superstore Sales--Up 114% in '93," Publishers Weekly, April 26, 1993, p. 17.
• ----, "Superstores Success Spurs New Try at B & N Offering," Publishers Weekly, September 13, 1993, p. 12.
• Munk, Nina, "Title Fight," Fortune, June 21, 1999, pp. 84--86, 88--90, 92, 94.
• Mutter, John, "Crown Sells Interest in Bookstop to BDB for $8.3 Million," Publishers Weekly, June 1, 1990, p. 15.
• Prial, Dunstan, "Barnes & Noble Books an IPO for Web Unit," Wall Street Journal, August 21, 1998, p. B1.
• Reda, Susan, "Barnes & Noble Forays Open Battle for On-Line Bookselling," Stores, May 1997, pp. 50+.
• Reilly, Patrick M., "Barnes & Noble Closes Book on Attempt to Buy Ingram, Amid FTC Objections," Wall Street Journal, June 3, 1999, p. B16.
• ----, "Barnesandnoble.com to Join a Crowd of Firms Offering 'Online Music Stores,"' Wall Street Journal, July 7, 1999, p. B2.
• ----, "Barnes & Noble Draws Fire over Plan to Buy Ingram Book for $600 Million," Wall Street Journal, November 9, 1998, p. B10.
• ----, "Barnes & Noble Likely to Build Centers for Distribution If Ingram Deal Fails," Wall Street Journal, June 2, 1999, p. B8.
• ----, "Barnes & Noble Sues Amazon.com over Rival's Book-Selling Claims," Wall Street Journal, May 13, 1997, p. B3.
• ----, "Bertelsmann to Buy a 50% Interest in Web Bookseller," Wall Street Journal, October 7, 1998, p. B8.
• ----, "Booksellers Prepare to Do Battle in Cyberspace," Wall Street Journal, January 28, 1997, p. B1.
• ----, "Online Bookseller's Shares Increase by 27% in IPO," Wall Street Journal, May 26, 1999, p. C19.
• ----, "Street Fighters: Where Borders Group and Barnes & Noble Compete, It's a War," Wall Street Journal, September 3, 1996, pp. A1+.
• Reilly, Patrick M., and John R. Wilke, "FTC Staff Opposes Barnes & Noble's Ingram Bid," Wall Street Journal, June 1, 1999, p. B3.
• Sandler, Linda, and Patrick M. Reilly, "Barnes & Noble Slows Its Evelyn Wood Pace of Store Openings: A Twist in Bookseller's Plot," Wall Street Journal, September 2, 1997, p. C2.
• Strom, Stephanie, "Barnes & Noble Goes Public: Vol. 2," New York Times, September 3, 1993, p. D1.
• Stross, Randall E., "Why Barnes & Noble May Crush Amazon," Fortune, September 29, 1997, pp. 248, 250.
• Symons, Allene, "Barnes & Noble to Buy B. Dalton: Will Become Largest Chain," Publishers Weekly, December 12, 1986, p. 17.
• Tangora, Joanne, "Major Chains Set New Software Strategies," Publishers Weekly, August 24, 1984, pp. 38--39.

Source: International Directory of Company Histories, Vol. 30. St. James Press, 2000.

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