After its troubled foray into online retail, bookstore chain Barnes & Noble's ( BKS) is looking for a surer thing in its latest initiative: a plan to beef up its book publishing business. And indeed, analysts say the company has made a largely foolproof bet that could help it with a number of goals, including getting lower prices from the same publishers whose turf it's encroaching. Barnes & Noble currently publishes about 3,000 books, which account for around 3% of its $3.62 billion annual bookstore sales. The publishing initiative, announced last week with the appointment of Stephen Riggio to chief executive, is expected to expand that percentage to 10% in the next five to six years. Industrywide publishing revenues run around $25 billion a year. "I think people will be watching to see how Steve does," says Jim Milliot, an editor with Publisher's Weekly. "But there's almost no way they can fail. They're talking about five to six years, so they'll probably go in incremental steps. They'll test what works in their stores -- if it doesn't then they'll just pull it back."
Publishing its own books will give Barnes & Noble some exclusive product that other retailers, such as Borders, don't have. Borders used to have a publishing arm but left the business and has no plans to return. Analysts said Borders got out partly for reasons of geography -- it's based in Michigan, far from the publishing epicenter of New York -- and partly because it lacks Barnes & Noble's scale. The whole idea behind a bookstore publishing books is that it can control both ends of distribution, and the more scale the better. The company can place its own titles in strategically favorable locations, while relegating competing titles to out-of-the-way shelves, or refusing to buy them at all. Barnes & Noble probably doesn't intend for the publishing business to become another big leg of its operation, analysts said, but it will no doubt steal some sales from its suppliers. "The publishers, let's make no mistake about it, are not happy. But there's nothing they can do about it," said Milliot. "If Barnes & Noble increases its publishing sales, other titles are going to lose shelf space to Barnes and Nobles." Major publishing houses Random House, Simon & Schuster and HarperCollins declined to comment on the record for this article. the publishers' hand to give them better terms." The main risk Barnes & Noble faces in bulking up its publishing business is that if it doesn't choose titles carefully, it could end up with a lot of unsold inventory. "If they don't do it well, they'll have a lot of unsold books, and they'll have no one to return them to," said another industry expert who preferred not to be named. "They'd have to mark them down." The risk isn't huge, however, for a company that has succeeded for so long by understanding which books people will want and which they won't.