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BARNES & NOBLE ROLLOUT NOT SLOWED BY SOFT ECONOMY

By Kimberly Pfaff

Nearly 13 years after Barnes & Noble revolutionized retail with its superstore concept, the nation’s No. 1 bookseller is again on a roll. The company will open about 50 new books-and-café superstores a year over the next five to 10 years, up from the 40 new stores it opened in 2001. Ultimately, Barnes & Noble plans to expand from its current 610 units to 1,000 stores across the United States.

“To their credit, Barnes & Noble introduced a whole new retail model,” said Candace Corlett, a partner with WSL Strategic Retail, a New York City-based retail consulting firm. “They broke all the rules.” Who would have believed, for instance, that a bookstore would consider it profitable to install armchairs and invite customers to sample the merchandise — cover to cover in many cases?

“They’ve played a huge role in underscoring this lifestyle phenomenon we’re now experiencing,” said Ian Thomas, chairman of Thomas Consulting, Vancouver, British Columbia. “Everyone wants value, and Barnes & Noble has blended the need for value, but in a contemporary, elegant environment. Their stores are large, often on two levels. They are distinctly different from a Borders bookstore. They’re king of the anchors to this new lifestyle image that is becoming much more of an influence on where we shop.”

But while it may be an innovative retailer, the company is continuing to expand at a time when its latest financial figures aren’t entirely rosy. Although the bookseller’s total sales for the second quarter of 2002 increased 10.5 percent, to $1.16 billion from $1.05 billion the previous year, Barnes & Noble said profit for the year would be less than expected. The company also revised its second-half comparable-store sales forecast down from between 4 percent and 5 percent to between 2 percent and 3 percent.

“We’re affected like all retailers would be in a soft economy,” acknowledged Mitchell Klipper, COO of Barnes & Noble and president of Barnes & Noble Development, the company’s real estate operations arm. “Our sales are a little softer than they could have been.”

Still, he noted, “in soft times, people like to stay home more, and this is a relatively inexpensive form of entertainment: books, coffee, magazines. The soft economy is clearly taking some dollars out of the store, but people do take some comfort out of escaping all the craziness going on. They can come in, browse, sit and rest a while.”

Even so, some analysts note that in such uncertain economic times, small luxuries, too, may ultimately become a questionable expense.

“I think Barnes & Noble has to think real cautiously about a recession mind-set settling into shoppers, because spending $80 on books in an evening is a real luxury,” said Corlett. “They are selling luxury entertainment, and they can’t survive on people running in for $4 paperbacks. And in a recession mind-set, all of a sudden the library looks pretty good.”

That viewpoint has not deterred developers, however, who view Barnes & Noble as a surefire shopping center draw.

Though most Barnes & Noble stores are two-level, no two stores look the same.

“They’re able to adapt to different retail settings and demographics,” said T.J. Drought, senior vice president of leasing for Glimcher Realty Trust, Columbus, Ohio. The developer has three Barnes & Noble superstores; two are attached to super-regional malls, while the third is in a power center.

“For us they make a wonderful tenant,” he noted. “They bring in a lot of people, and people stay for a long time. They generate a lot of volume for us, and they’re an anchor that will not necessarily compete or conflict with any other anchors in a center.”

Some developers even find Barnes & Noble a helpful presence when they’re merely located near one of their centers.

“We have shopping centers where they’re adjacent to ours, but not in ours, and we like them,” said Norman M. Kranzdorf, chairman of the board at Kramont Realty Trust, Plymouth Meeting, Pa. “They’re a great draw — they bring in a lot of traffic, and they attract an upscale clientele, so they are certainly an asset to the tenant mix.”

Among those developers not already working with the book chain, many, such as Bloomfield Hills, Mich.-based Taubman Centers, are hoping to add the retailer to their portfolios.

“We own largely enclosed regional malls, and their strategy largely has been endcaps or freestanding locations,” explained David Weinert, Taubman’s group vice president of leasing. “We would love to do business with these guys, and as we look at new development projects, we’re actively trying to figure out how to design in a pad for a large bookstore.”

That’s precisely what Westcor Partners did when it added Barnes & Noble superstores to two of its regional malls.

“These were both brand-new developments, so we planned Barnes & Noble in from the start and worked them into our plans,” said Mike Treadwell, senior vice president for development at Phoenix-based Westcor, which was acquired this summer by the Santa Monica, Calif.-based Macerich Co. “In both centers they were very interested in having street visibility, if possible, and having a major tenant identity.”

Treadwell added, “We consider them an anchor to the centers and a tenant mix that helps the evening draw.”

For now, Barnes & Noble will expand into both new and existing markets as well as upgrade existing stores. The vast majority of the chain’s superstores are located in suburban and major metropolitan areas. Currently, about 40 to 50 of its stores are in regional malls; most are located in a mix of lifestyle, strip and power centers. The company has fewer storefronts in central business districts, with the greatest concentration of these in New York City.

One thing’s certain: America’s largest bookseller takes its time finding the best possible location.

“We’re looking to sign the best site, not the best available site,” emphasized Klipper. “A developer might say, ‘I’ve got a great strip center here,’ but if we know that for this individual area there’s a lifestyle center coming in, we’ll wait. I’ll wait three years to get the best location. We find that it’s well worth the wait in every case.”

And once Barnes & Noble decides on a location, it has specific demands. For malls, the retailer requires that it be positioned like an anchor, with the front door facing the parking lot and another main entrance facing the mall interior. In a lifestyle or strip center, the company looks for either the 50-yard line or the endcap position, depending on the design.

“We must have a major presence,” said Klipper, noting that the store itself adds a major architectural statement to the property. The average Barnes & Noble superstore is 25,000 square feet.

“We have no prototype; every one is different,” said Klipper, noting that while there may be similar elements found in each location — a café, a children’s section — each store has an individual size and shape. “We don’t just pop it into a machine and spit out a store. We try to build something that’s very appropriate for the individual community.”

As for the preferred mall co-tenant, restaurants are the company’s favorite. “Food — particularly sit-down, white tablecloth food — is best, because customers can have a two-hour wait at these places,” Klipper said.

Also favorable are such co-tenants as Linens ’n Things, movie theaters and food stores. “What’s good for us is day-in, day-out traffic, where people are shopping for general merchandise,” said Klipper.

In addition to its book superstores, Barnes & Noble also owns a 60 percent interest in GameStop, the leading video game and entertainment software retailer, with 1,128 mainly mall stores. The company plans to continue aggressively expanding this chain by about 175 stores a year over the next few years. “It’s the fastest-growing segment of the retail business out there, with new platforms and video games,” Klipper said.

The company also operates 300 B. Dalton mall stores and a handful of Doubleday and Scribner’s stores. Klipper said the smaller bookstore business will continue to shrink over time and will eventually be eliminated in favor of larger-format stores. The company plans to close 30 to 40 B. Dalton units over the next three to five years. “The days of the small bookshop opening up are pretty much over,” he said.

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