Strategic Analysis 2

Strategic Analysis 2

The Five Forces of Porter

The Five Forces framework derived by Porter identifies the factors in a specific market that have a substantial bearing on an organization’s viability in its industry. These significant factors include: “the threat of substitute products or services, the bargaining power of suppliers, the bargaining power of buyers, the threat of new entrants, and the rivalry among existing competitors” (The Five Forces, n.d.).

The most prominent substitute product that Barnes & Noble faces is the expansive digital market. The digital market represents a high threat to Barnes & Noble as the company has been unable to capture a sustainable competitive advantage in this regard. As e-books and tablets began to trend in 2009, the company was one of the first in the industry to find success with e-readers and a self-publishing platform (Alter & Hsu, 2019). Unfortunately, overly frequent product releases in the quickly evolving market hurt the company. “The company’s digital strategy turned out to be a financial disaster. It has lost more than a billion dollars on its Nook business, and online sales remain anemic,” (Alter & Hsu, 2019).

In the case of Barnes & Noble, the bargaining power of buyers (customers) is a high threat to the company’s overall sustainability. Buyers in a market hold power when “there are few switching costs to shifting business from one competitor to another” (The Five Forces, n.d.). When the price of a hardcover book or special edition from Barnes & Noble typically costs close to $30, customers can easily switch to the major competitor, Amazon, and find the same product for less (Tyler, 2018). This increases the power of buyers substantially.

The threat of new entrants in the bookseller industry maintains a high threat for Barnes & Noble. The company has shifted the strategy of some locations to illuminate the café setting as the core business, and the new owner is hoping that more localized and specific products will bring consumers back (Alter & Hsu, 2019). Despite these changes, independent bookstores are a viable threat to the bookselling superstore. “Independent bookstores are thriving again, and print sales are rising while e-book sales are declining” (Alter & Hsu, 2019).

Concerning any competition within the industry, Amazon is Barnes & Noble’s biggest rivalry, representing a high threat to the sustainability and profitability of the company. The online retailer provides a vast selection of books, as well as a cohesive and synergized e-book and e-reader marketplace (Alter & Hsu, 2019). If rivalry in an industry is especially intense, product prices can be driven down and overall profitability is likely to suffer (The Five Forces, n.d.). These circumstances cultivate a highly competitive environment wherein firms must endeavor to lower prices, improve customer service, and match technological advancements. Barnes & Noble is often beat through price competition and improvements in technology.

Five Forces Summary

Porter’s Five Forces analysis highlights the problem that Barnes & Noble currently faces. The organization struggles in increasing product sales and overall profitability. All five competitive forces indicate that the bookseller is part of a highly competitive industry of specialty retail. Powerful buyers and suppliers influence the market and pose threats to the sustainability of Barnes & Noble. Moreover, the market is flush with new entrants in the form of independent bookstores, while Amazon serves as the firm’s biggest rival and most prominent disruptor (Hyken, 2018). Given this information, several popular strategies could be employed. Barnes & Noble could:

· shift its focus to services rather than products,

· develop new sustainable differentiation,

· build a more sufficient supply chain, or

· innovate new products to recapture lost interest.

BCG Analysis

BCG matrix is a framework was created by the Boston Consulting Group and is used to evaluate the strategic position of the business brand portfolio and its potential. It breaks down the business portfolio into four categories and is based on growth rate and market share.

Category 1 is Stars: This section focuses on products or services that are in high growth markets in which organizations should invest more. For Barnes & Noble, investment should be increased in curated home goods that meet the needs specifically of each community the locations serve (Wiener-Bronner, 2018). A comparable company, Indigo, has found success in Canada with this strategy by implementing a “cultural department store for booklovers”.

Category 2 is Question Marks: Included in this category are products/services of Barnes & Noble that represent the low market share and high market growth. Products in this quadrant typically grow quickly but consume copious amounts of resources along the way (Kenton, 2019). The current agreement with Starbucks Coffee falls into this section of the matrix. The current agreement between the two companies seems to benefit Starbucks more than Barnes & Noble. Overall sales should be watched closely and analyzed to ensure the partnership is mutually beneficial. As an alternative, the company could keep the café service, but with the use of more localized and independent coffee brands (Wiener-Bronner, 2018).

Category 3 is Dogs: These are those products or services that are “prime candidates for divestiture,” (Kenton, 2019 para. 4). In this regard, Nook has proven to be a failure and a cash trap for the company. With more than a billion dollars in lost profits, the company should stop attempting to revitalize the project and move toward revamping its brand in other ways (Alter & Hsu, 2019).

Category 4 is Cash Cows: This quadrant identifies products or services that are a significant source of revenue for the organization and that should be milked for as long as possible. Despite a decline of store sales by 1.9% between 2018 and 2019, Barnes & Noble’s biggest source of profit remains to be its retail stores (Barnes & Noble Reports, 2019). Under the direction of new ownership, the organization is expected to revamp its locations into brick-and-mortar locations that tailor to each community it serves (Alter & Hsu, 2019). This rebranding could be essential in milking the company’s cash cow for as long as possible.

BCG Analysis Summary

This tool shows the areas of opportunities that the company should explore and develop further. Though typically presented in the form of a matrix, the BCG Analysis classifies potential areas of growth and loss that have a profound influence over Barnes & Noble’s profitability. Ultimately, Barnes & Noble needs a more sustainable competitive advantage in the constantly evolving market. After evaluating the stars, question marks, dogs, and cash cows, the growth opportunities are clearer and the stagnate components of the company have been identified.

Resource-Based Analysis

The resource-based analysis could be argued as one of the most widely accepted theories in understanding the competitive advantage of a firm (D’Angelo, 2018). When analyzing Barnes & Noble, the tangible assets, intangible assets, heterogeneous resources, and immobile resources will be evaluated. Barnes & Noble has significant tangible assets when considering brick and mortar locations, distribution centers, products, and capital. The company currently operates 627 bookstores in 50 states and approximately 1,745,000 square feet of distribution center capacity (Barnes & Noble, Inc., 2019b). Each location is reported to have an average overall title base of 66,000 titles, with as many as 133,000 in some locations (Barnes & Noble, Inc., 2019b). As of April 30, 2019, the company had a debt-to-equity ratio of 0.46, which is a significant decline from the previous year’s ratio of 0.67 (Barnes & Noble, 2019a). At the end of the fiscal year, the assets were valued at $1.784 billion (Barnes & Noble, 2019a).

For the world’s largest brick and mortar bookseller, brand reputation represents a significant intangible asset. In 2018, the Reputation Institute recognized Barnes & Noble as the most reputable retailer in the United States (Barnes & Noble, Inc., 2019b). Furthermore, the processes within Barnes & Noble are supported by a proprietary bookstore inventory management system called Book Master. This technological advancement assimilates POS features with a data warehouse-based replacement system (Barnes & Noble, Inc., 2019b). The company’s publisher, Sterling Publishing, also serves as an intangible asset that could be further developed.

Barnes & Noble’s heterogeneous resources are a culmination of publishers, wholesalers and distributors, and physical locations. The supply chain for the company is comprised of over 500 publishers and over 30 wholesalers or distributors (Barnes & Noble, Inc., 2019b). As noted, the physical locations carry an average of 66,000 titles, but the locations also offer something that the largest competitor does not: personal and face-to-face interaction. As such, the combination of each of these factors represents heterogeneous resources for the company.

The intangible assets of the company are difficult to imitate, especially when considering brand equity. The Barnes & Noble name is well-known and nearly synonymous with book sales. While the major competitors specialize in other retail markets, books are the primary product of Barnes & Noble and the sales thereof are the core activity of the company. These assets could also be considered immobile resources as they would be difficult to move to another firm.

Resource-Based Analysis Summary

In a resource-based analysis, assets are evaluated to determine if they create value, are rare, are hard to imitate, and whether the organization exploits the resource in its processes. An asset that creates value, is rare and is hard to imitate and that is used effectively in an organization is considered a competitive advantage.

References

Alter, A. & Hsu, T. (2019, June 7). Barnes & Noble is sold to a hedge fund after a tumultuous year. The New York Times. Retrieved from https://www.nytimes.com/2019/06/07/books/barnes-noble-sale.html

Barnes & Noble, Inc. (2019a, June 19). Barnes & Noble reports fiscal 2019 year-end financial results [Press release.]. Business Wire. Retrieved from https://www.businesswire.com/news/home/20190619005407/en/

Barnes & Noble, Inc. (2019b). Form 10k for the fiscal year ending April 27, 2019. Retrieved fromhttps://www.sec.gov/Archives/edgar/data/.htm

D’Angelo, E. (2018, February). A resource-based perspective to assess firms’ profitability in the food industry: evidence from the Italian cheese industry. Pegaso Telematic University. Naples, Italy Doi: 10.19044/esj. 2018.v14n4p1

Hyken, S. (2018, April 8). Barnes & Noble, Amazon, independents: Who’s disrupting whom? Forbes Magazine. Retrieved from https://www.forbes.com/sites/shephyken/2018/04/

08/arming-the-Davids-of-industry-against-disruptive-goliaths/#49dbb61a66c8

Kenton, W. (2019, July 2). McKinsey 7s model. Investopedia. Retrieved from https://www.investopedia.com/terms/m/mckinsey-7s-model.asp

The Five Forces (n.d.). Harvard Business School. Retrieved from https://www.isc.hbs.edu/strategy/business-strategy/Pages/the-five-forces.aspx

Weiner-Bronner, D. (2018, January 17). 5 things Barnes & Noble can do right now to save itself. CNN Business. Retrieved from https://money.cnn.com/2021/02/12/news/companies/save-barnes--noble/index.html