Barnes & Noble's Next Chapter Calls for Significantly Smaller Stores

New Stores Will Be About Half the Size; Existing Store Square Footage Will be Edited Down

Notable horror genre author Stephen King and bookseller Barnes & Noble owe a lot to each other's success, and perhaps Barnes & Noble is now taking a cue from King's writing wisdom when it comes to running their stores.

"When your story is ready for rewrite, cut it to the bone. Get rid of every ounce of excess fat. This is going to hurt; revising a story down to the bare essentials is always a little like murdering children, but it must be done." - Stephen King

Following dismal quarterly results this year and a reorganization plan that has called for trimming $40 million a year in costs, Barnes & Noble is now ready to rewrite its store plans and it calls for cutting excess fat.

The bookseller's next chapter calls for opening significantly smaller stores and trimming existing store space as leases come up for renewal.

The company has reported deteriorating same store sales in four of the last five years and again this quarter. Last week, Chief Executive Demos Parneros reported even poorer results: a fiscal 2018 net loss of $125.5 million compared to net earnings of $22 million the year before.

In his earnings conference call, Parneros laid out a road map to return to profitability with a real estate rewrite a key theme.

"Another way we plan to rebuild sales is through enhancements to our real estate portfolio. We're excited to open several new prototype stores this year, which will feature a completely new design," Parneros said. "We see a lot of opportunity for the smaller and more flexible prototype and as a result will be net store positive this fiscal year."

The company operates 630 bookstores with 16.6 million square feet of space under the Barnes & Noble Booksellers trade name with an overall average store size of 26,000 square feet. All but one are leased.

The new store size going forward will be significantly smaller - 14,000 square feet on average.

"We are excited to be launching early fall with the first one of these stores and we intend to get great learning and takeaways from these," Parneros said.

While that effort gets underway, the bookseller will also be looking at downsizing its existing stores as leases come up for renewal. The company has about 250 lease expirations coming upon expiration dates by the end of 2020--40 percent of its portfolio--most of them already in renewal period options.

"So, while we have a good store that's making a good four-wall profit, we'll try and downsize the square footage of it and be more efficient," Parneros said. "That's the direction."

The first space it plans to cut is square footage devoted to music and videos, which makes up as much as 8,000 square feet in some of existing stores. Store comparable sales for music and DVDs was reported to be down by "double-digit" figures.

"We can't downsize all of those stores, but where we can, we will downsize those stores and when we do, we will give much less space, if any, to those categories," Parneros said. "It's a little bit of a slower process that we'd like. We'd love to do it overnight, but trying to be prudent with usage of our capital and our expense dollars where we're moving and where we've reallocated space, we've seen the results."