Supply Chain Matters has often warned of the Amazon effect on manufacturers and retailers and now there is another victim.

Business media has reported that after spending millions of dollars in an effort to compete head-to-head with Amazon on providing electronic tablets and e-readers, Barnes and Noble is changing course.  It announced that it would stop producing its own Nook branded color tablet. Instead, the retailer will opt for a co-branded color reader device produced by third-party manufacturers. According to a report published in the Wall Street Journal, this book retailer will continue to make its own black and white Nook e-readers, however, Supply Chain Matters is not optimistic that this strategy will be sustaining.

This change of course coincided with the April ending quarterly earnings announcement that reported a 34 percent drop in Nook generated revenues and operating losses of $177 million. The latest operating loss included a $133 million charge to write-off unsold inventory.  Ouch!

In the end, although the Color Nook had comparable functionality to Amazon’s Kindle device, it could not amass the number of added apps, music and video offerings.  Eroding pricing in the market along with meager marketing budget did not help.

In early February, Supply Chain Matters commented on IDC’s latest report of tablet shipments. According to IDC, worldwide shipments of electronic tablets during the holiday peak season grew by 75 percent to a fourth quarter record, thanks to lower selling prices and new product offerings.  While Amazon shipped more than 6 million of its Kindle line of tablets, IDC reported that market share slipped over 4 points.  The Nook family shipped close to a million units, but also suffered a significant market share decline. Thus, the entire tablet market has become highly competitive with consumers apparently opting for broader functionality tablets and readers manufactured by Apple and Samsung.  Perhaps Q4 was the significant sign post for Barnes and Noble management, opting to go one more quarter to determine the ultimate strategy to compete in this market.

In September of last year, this author viewed a presentation from Dan Gilbert, Executive Vice President of Operations for Barnes and Noble Nook group which provided an interesting perspective on bringing together both physical and digital supply chain capabilities. We noted that in our travels among many supply chain management conferences, this was one of the view organizations that were actively leveraging social media based indicators to plan supply chain needs.  The production introduction of the Nook GlowLight Simple Touch was described as a blockbuster product launch and was leveraged by early indicators of high consumer interest across both the vendor’s and social media channels.  A need for strong time-to-market and asset light objectives drove the Nook supply chain team to successfully leverage SaaS based information systems  in PLM, response planning, and POS data cleansing to broaden supply chain business process capabilities without getting bogged down in long systems implementations. We believe that this technology flexibility helped the Barnes and Noble Nook supply chain to be able to respond to this highly competitive market, and may well serve as an aide in its revised strategy.

To the credit of this team, they did well to meet the challenge of a highly dynamic market, but in the end, the market forces of Amazon, Apple and Samsung competing for market share and functionality dominance are taking a toll.  

This will surely not be the last supply chain related announcement coming from this consumer electronics market segment

Bob Ferrari