Why Selling Nooks at Walmart Could Hurt Barnes & Noble

Just in time for the (ridiculously early) start of holiday shopping, Barnes & Noble (BKS) will be peddling its Nook e-reader at -- wait for it -- Walmart (WMT). Both flavors of Nook, 3G and WiFi, will hit the shelves in 2,500 Walmart stores on October 24 along with an array of other e-readers including Border's (BGP) Kobo and Apple's (AAPL) iPad.

It's a puzzling move on the part of the world's largest book retailer, which is trying to boost its click-and-brick value.

Barnes & Noble is fresh off the contentious battle between its chairman and majority stakeholder Len Riggio and activist investor Ron Burkle of The Yucaipa Cos. Proxy election results held at its annual shareholders' meeting nearly a month ago left Riggio in charge of steering the bookseller to a possible sale.

As the war between lion Riggio and tiger Burkle raged, B&N management was busy trying to position the bookseller to reap digital sales in direct competition with Amazon. Part of the strategy was to bolster in-store sales at its 717 locations. To that end, B&N installed a veritable shrine to Nook, a point-of-sale display just beyond the entrance manned with a knowledgeable staffer, Nook demo models and loads of accessories for the device.

Tacked on to that initiative were all manner of promotions (think free coffee, downloads, etc.) and the launch of B&N's digital self-publishing service PubIt!.

Riggio maintains that B&N stock is undervalued and that it's got a unique asset in the brick-and-mortar stores that competitor Amazon does not.

So it seems counterintuitive that Nook should be swimming in a sea of competitors at a discount chain, even though Walmart's designating a branded e-reading section in its consumer electronics department. Perhaps B&N management figured if you can't beat 'em, join 'em. Barnes & Noble may not want a reprise of last fall's battle of the bestsellers: Walmart's highly publicized bid to snag market share with an online price war on ten hot holiday titles.

B&N may also have based its decision on the season. Electronics are a hot segment at the discount chain during the holidays. But Walmart drives sales on deep discounts. Those hinge on how much margin Bentonville's behemoth can wring from vendors. And, as Sarah Weinman at Daily Finance sagely notes, having an array of devices available could trigger a price war among manufacturers, with nary a Kindle in sight.

Even more puzzling is if the rumors are true, and B&N is planning to announce its new Nook -- Android-based, complete with full-color touchscreen for $249 -- won't that be just as bad as Amazon releasing its new Kindle after rolling out the cheaper old one at Target?

These are tough times for booksellers and Barnes & Noble's got plenty of woes. It's not a time to deliberately take a loss of any kind, even for the sake of "access to a customer who we think grows the base of Nook customers." An exclusive deal with a more high profile, bookworm-friendly retailer might have been a better choice. Especially in light of intense scrutiny from potential buyers.

Image via Flickr user Mostly Muppet CC 2.0

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