From humble beginnings to a bookselling behemoth, Barnes & Noble has seen ups and downs over the decades as it tried to straddle the world of paper books and e-books.
Mr. Klipper said his forecast assumes that the company will close about 20 stores a year over the period.
The chain shut an average of about 15 stores a year in the past decade, but until 2009 it also was opening 30 or more a year. Its store openings have largely dried up as consumers’ shift toward digital books has upended the market and developers have stopped opening new malls; this fiscal year it has opened only two stores.
The company’s consumer bookstores peaked at 726 in 2008, excluding the B. Dalton chain, which is now defunct.
Even with 450 to 500 stores, “it’s a good business model,” says Mr. Klipper. “You have to adjust your overhead, and get smart with smart systems. Is it what it used to be when you were opening 80 stores a year and dropping stores everywhere? Probably not. It’s different. But every business evolves.”
Mr. Klipper’s comments come amid growing questions about Barnes & Noble’s future. This month the company reported an unexpectedly weak holiday selling season, with store revenue declining nearly 11% from a year earlier. Book sales at stores open at least a year, a key barometer in the industry, fell 3.1%.
After years of losing market share for print books to discounting by Amazon.com Inc., Barnes & Noble is grappling with the print market’s shrinkage, thanks to the growing popularity of cheap e-books, also championed by Amazon. Unit sales of print books dropped 9% in the U.S. last year, according to market researcher Nielsen BookScan, and they are off 22% from 2007, when digital books started gaining traction.
At the same time, Barnes & Noble’s efforts to build support for its two new Nook tablets have stalled. Amid competition from Amazon, Apple Inc., Google Inc. and electronics companies like Samsung Electronics Co., sales of Nook products in stores and online during the holiday season fell from a year earlier.
Plenty of retailers have been felled by digital competition in the past decade, including Tower Records, Circuit City Stores and Barnes & Noble’s former rival, Borders Group Inc. Retail consultant Doug Stephens, whose book, “The Retail Revival,” is being published in the U.S. in March, predicts that mainstream booksellers eventually will “become a thing of the past.”
Mr. Klipper said he thinks that’s nonsense. Opening a thick printout of the financial performance of each Barnes & Noble store, he ran his finger over a few lines and said, “This is what’s losing money, a handful. Then you go from making money to making a lot of money.” He estimated that fewer than 20 of the retailer’s stores lose money, or less than 3% of the group’s total.
To be sure, the stores remain comfortably profitable, generating $317 million in earnings before interest taxes depreciation and amortization in fiscal 2012. That’s more than enough to offset continuing losses at the Nook unit.
David Strasser, an analyst with Janney Montgomery Scott LLC, projects that ebitda at Barnes & Noble’s retail group, which includes BN.com, will rise 7% in fiscal 2013, which ends in April, but will decline modestly the next fiscal year.
The next two years will go a long way in defining the bookseller’s future, by clarifying how fast the print market is shrinking. Bertelsmann SE & Co.’s Random House, the world’s largest publisher of consumer books, says e-books now make up about 22% of its global sales, up from almost nothing five years ago. The head of a major publishing rival says he expects e-books will be as much as 50% of his total book sales in the U.S. by the end of 2014. Digital books already account for 60% of this publisher’s sales of new commercial fiction, a key category for the nation’s largest bookstore chain.
Mr. Klipper, though, argues that consumers read both digital books and print books. “That’s why we’re going to be around a long time,” he said. “Digital is a convenient format. It could be expanding the market in fiction. I think the combined book market is growing.” Publishers say the growth rate of e-books has slowed in recent months.
Declines in print sales could affect the pace of store closures. Barnes & Noble has 442 leases up for renewal by April 30, 2016, representing substantially more than half of its stores. Mr. Klipper said he expects many will be renewed: “Why close them if they are making money?”
Bookstores remain valuable to mall owners. “They are a destination,” said Stephen Lebovitz, CEO of CBL & Associates Properties Inc., one of the country’s largest mall landlords. “They still do a strong volume, they bring in traffic, people socialize. We still like them as a tenant.”
Mr. Klipper said that bookstores serve a different purpose than many other retail outlets. “You go to Barnes & Noble to forget about your everyday issues, to stay a while and relax,” he said. “When you go to Bed Bath & Beyond, you don’t sit down on the floor and curl up with your blender and your kid.”
At least some consumers appear to agree: On Jan. 20, 600 people turned up at a Barnes & Noble store in New York for a reading by Supreme Court Justice Sonia Sotomayor, promoting her new memoir, “My Beloved World.” Altogether they bought 1,200 copies that day.
Write to Jeffrey A. Trachtenberg at jeffrey.trachtenberg@wsj.com
A version of this article appeared January 28, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: B&N to Cut Up to 33% Of Its Retail In a Decade.