Why Did Merged Channel Fail Barnes & Noble?

Now that Barnes & Noble (NYSE:BKS) has lost its CEO and is exploring "strategic alternatives," it looks increasingly like the last bookstore megachain has reached its last link. On Monday (July 8), CEO William Lynch resigned, and Chairman Leonard Riggio named a new president, but not a CEO. The obvious question: When does a retailer not need a CEO? When it expects a new owner to name one. The less obvious question: How could merged channel/omnichannel have failed Barnes & Noble so completely?

Think it's because Barnes & Noble is in the dead-tree book business? So is Amazon (NASDAQ:AMZN). Besides, at last report the brick-and-mortar bookstore business was still holding up (if only barely). It's the Nook and the chain's efforts to merge physical book and E-book retailing that have been a bottomless money pit. So why did Barnes & Noble—having lost its biggest physical-store competitor when Borders went under—fail to gain any merged channel/omnichannel traction?

It wasn't for lack of trying. The whole point behind putting Lynch in the CEO chair was that he had been running the chain's online operation. That didn't work out, in part because Lynch really, really didn't like physical bookstores—so much that he moved out of the chain's Manhattan headquarters to work in the dot-com offices a mile away, and the CFO and other top executives followed him.

So much for merging the channels.

But that wasn't the only lost omnichannel opportunity, and if Riggio actually convinces his board to sell him the stores and E-Commerce operation, as he proposed in February, Barnes & Noble still has a deep omnichannel problem.

No, the Nook turned out not to be the answer—having a bookstore in your pocket is nice, but the Nook wasn't as nice a pocket bookstore as the Kindle or the iPad. Barnes & Noble was used to getting books from publishers and selling them, not engaging in back-alley knife fights over pricing and exclusive rights.

But even with a successful Nook strategy, that would have been the wrong place to look for merged channel bookselling success. For one thing, physical books and E-books are a forced marriage. When Barnes & Noble came up with the idea of letting Nook owners who were physically in the stores browse a wide range of free books, that was clever—but no one seems to have realized that it was pointless. Yes, Nook owners represented traffic, but since they weren't going to buy physical books, what was the point of luring them into the store?

But there's a deeper reason the Nook was the wrong way to look. That's recommendations.But there's a deeper reason the Nook was the wrong way to look. Amazon isn't successful because of the Kindle. Amazon is successful because of recommendations. At every turn on Amazon.com, someone—usually another customer—is telling every potential Amazon customer why they like this book, what they'd also like, what they'd like better than this book. The endless implicit message: Buy this. Buy more. Buy better.

Yes, it's crass. It's occasionally ugly and offensive, and frequently just annoying, inelegant and uncomfortable. But on Amazon's site, you never get a chance to forget you're in a online store where you really should be buying books.

That's a concept that works in-store too—even better, in some ways, than it does online. But as far as I can tell, it's a concept that has never surfaced in Barnes & Noble's comfortable, elegant stores. The associates are helpful if you ask, and they may even make polite recommendations. Mostly, though, they stay out of your way as you sit in a comfy chair and page through a book (or your Nook) with no special push to buy.

Compare that with one of the largest independent bookstores in the U.S., Powell's Books in Portland, Ore. Never mind that the store is a labyrinth that literally requires a map to navigate and "elegant" is a description customers would never likely use. But recommendations are everywhere. Shelves are littered with paper tags containing capsule reviews, staff recommendations, "if you like..." characterizations and snapshot summaries ("Zombies!"). Flyers, newsletters and posters drive home the point: Look at this. We liked this. Here's why you might like this.

It's a bookstore that learned the Amazon recommendation lesson before Amazon was even around. And it's a lesson Barnes & Noble still hasn't learned. It has nothing to do with a labyrinthine indy style, and everything to do with understanding that recommendation lesson.

In the end—if this does turn out to be the end for the chain—that's why merged channel/omnichannel failed Barnes & Noble. Merged channel isn't just about moving customers and merchandise between online and stores. It's about moving what works between the two. Recommendations work. Book selling works. It works online; it works in stores. It's easier to automate on an E-Commerce site, because programming is once but staff training is endless. (OK, software maintenance is endless, too.)

But if stores fail to learn from online and vice versa, both channels are weakened. Chains that fail to keep applying lessons they learn in each channel to the other put themselves at risk.

And retailers who don't really like both channels are all but guaranteed to fail.

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