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Here's Why the Worst Is Yet to Come for Barnes & Noble

Daniel B. Kline, The Motley Fool

Barnes & Noble (NYSE: BKS) has been a slowly sinking ship for many years. You can blame some of that on Amazon (NASDAQ: AMZN) and some on the chain's own incompetence.

The bookseller botched its digital strategy by waiting too long to have one. Now, the company's NOOK line of digital readers barely exists, and there's no chance of winning back that market.

What's more troubling is that there's a clear blueprint for struggling retailers to follow since the rise of Amazon and the internet. Barnes & Noble added a piece of that when it built out its cafes, but it basically stopped there.

A customer browses books.

Barnes & Noble remains mostly a bookstore at a time when book sales have been moving online. Image source: Getty Images.

What's the formula for success?

Barnes & Noble is not the only retailer threatened by Amazon. Best Buy (NYSE: BBY) found itself in a similar position roughly six years ago when Hubert Joly became CEO. The electronics retailer had essentially become a showroom for Amazon -- a place consumers went to look at items before buying them at a cheaper price from the online retailer.

Joly instituted price-matching, but that was only one small piece of his efforts. He also transformed Best Buy to give consumers a reason to come to its stores.

That included building out store-within-a-store concepts from a variety of technology leaders. The Best Buy turnaround also involved adding omnichannel capabilities, and more services through Geek Squad.

Consumers have a reason to go to Best Buy now. They know they're getting a fair deal, and they can see dedicated areas for Apple, Microsoft, Samsung, and others (in many cases, their cable, internet, or phone providers). Basically, instead of just being a warehouse for electronics, Best Buy became a destination with lots of things to do and reasons for consumers to come out.

Why the worst is yet to come for Barnes & Noble

Books no longer make Barnes & Noble a destination. Consumers can browse books on their Kindles, tablets, and phones. They can also browse the shelves of a bookstore and then order the book from Amazon at a lower price.

To make its stores relevant, the chain needs more than merchandise. It put a toe into that water by adding toys, but it failed to use the category to become a destination. Barnes & Noble could have used its large stores full of open space to offer weekly gameplay in the high-end board games and collectible card and miniature games it offers. That would have led to increased spending by players on game supplies, and on coffee and snacks. If the company offered gaming events for younger kids -- maybe Pokemon or Yu-Gi-Oh! -- that would also bring in parents, who would at least buy coffee.

Barnes & Noble could also offer stores-within-a-store that would make sense in a bookstore setting. A great place to start would have been to partner with tutors and/or providers of music lessons. Adding cooking classes, wellness support, and other services might have made what are now merely stores into destinations.

Instead, the retailer has done very little change to its fate, aside from laying off some of its better-paid (and more knowledgeable) staff. That's not a turnaround plan so much as a delay tactic.

There's no sign that Barnes & Noble plans major changes, or that it's looking for a CEO (the position is currently open) to shake things up. The company has been operating cautiously -- as if somehow Amazon had not taken its market, or as if the right display of books might bring people back. That's not going to happen. And unless the chain makes drastic changes, it will continue its slow, steady descent.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors; LinkedIn is owned by Microsoft. Daniel B. Kline owns shares of AAPL and MSFT. The Motley Fool owns shares of and recommends Amazon and AAPL. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.