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Is Barnes & Noble Too Big to Fail?

With the sudden departure of yet another CEO, the bookstore chain is facing existential questions.

Tim Boyle/Getty Images

The day before the Fourth of July, Barnes & Noble issued a vague press release announcing that the ailing company’s chief executive, Demos Parneros, had been fired, effective immediately and without severance pay, and removed from its board. Parneros, the company’s fourth CEO in five years, had been on the job for just over a year; two weeks earlier he had led its fourth quarter earnings call, in which it was announced that revenue had fallen again.

Parneros’s termination is the latest in a long line of setbacks for a retail giant trying to stay afloat in the e-commerce era. It’s also the latest reminder of the extent to which Barnes & Noble, once the most disruptive company in publishing, has lost its way. The last several years have been defined by store closings, the high-profile failure of the Nook e-reader, falling revenues, layoffs, turnover, malaise. Whatever reason Parneros was fired—and Barnes & Noble isn’t saying—it’s hard not to read it as symptomatic of larger turmoil. It’s unclear how many more upheavals Barnes & Noble can afford, even though it is considered one of the linchpins of the industry—almost too big to fail.

The circumstances behind Parneros’s departure are murky and Barnes & Noble has done everything it can to keep it that way. The press release went out when most of the media was on vacation, while its contents are confusing. In what appears to be an effort to reassure investors and regulators, Barnes & Noble said Parneros was not fired for “any disagreement with the company regarding its financial reporting, policies or practices, or any potential fraud relating thereto.” Because Parnerors was fired without severance pay, we can surmise that his alleged offenses must be serious, but there are few clues so far as to what they could be. Barnes & Noble responded to a number of requests for comment by pointing me to the July 3 release.

This has naturally led to a lot of negative speculation, but negative speculation has become the norm at Barnes & Noble. Over the past several years, the company has embraced a number of different strategies to regain stability. Like other struggling retail chains, it has tried “cost-cutting” and experimented with events, book clubs, and selling alcohol. The Nook e-reader was its great hope at taking a bite out of Amazon, but it has been a disaster, costing the company hundreds of millions of dollars. Barnes & Noble’s longtime leader and largest shareholder, Len Riggio, announced that he was stepping down as executive chairman in the spring of 2016 and the company has not found any semblance of stability since.

Its stock price has been hovering around $5 for much of the year and has not been in double-digits since February of 2017; it has not been above $20 since the 2008 recession. In a perverse sense, this chaotic history has turned out to be something of a boon. At practically any other large, publicly traded company, the mysterious termination of a CEO would provide front-page business news. At Barnes & Noble, it’s still odd, but hardly unexpected.

Under Parneros, the company continued to close underperforming stores. Controversially, it also began firing experienced employees, who are more expensive to retain. Last December, after a particularly brutal quarter, Parneros suggested that the company would start experimenting with smaller stores—a strategy that has worked reasonably well for Waterstones, Barnes & Noble’s English equivalent. Like his predecessors, Parneros insisted that the chain would move away from selling toys and games and return to its identity as the nation’s preeminent bookseller. But after the closure of Toys ‘R’ Us, Parneros told investors the company saw an opening in the market that Barnes & Noble could fill.

This is fairly standard fare for the CEO of a big box chain during the “retail apocalypse.” But there’s quite a lot of strategic incoherence on display, even in Parneros’s brief reign. The company began firing its senior-most booksellers—the exact kind of employee who would pioneer a small-store experiment—just months after Parneros announced that Barnes & Noble would return to its bookselling roots and focus on the kind of individualized customer service that indie bookstores specialize in.

It is also conflicted about whether or not it’s a gift store or a bookstore. It is understandably addicted to high-margin items like games, which aid its bottom line. In a number of ways, Barnes & Noble is swimming upstream: It is an old-school “category killer” big box store in the age of Amazon, a bookstore in the age of Netflix. But it has undoubtedly made things much harder for itself by failing to hew to a distinct identity.

Many have made the argument that Barnes & Noble is too big to fail. It is enormously important to the American publishing ecosystem, and the consequences of its demise would likely be severe—in the main, Amazon would benefit and readers would lose. The government will not step in to save Barnes & Noble the way that it stepped in to save A.I.G., of course. But there are some things Barnes & Noble can do to right itself. Some investors have been clamoring for the company to go private for some time now. If it can do so without accruing the kind of private equity debt that sunk Toys ‘R’ Us, that would almost certainly make the company healthier in the long term.

Riggio has talked about opening smaller stores for the last two decades, without much action. Barnes & Noble is late to the game now, but the impulse is still the right one. It may not please investors much—another reason to go private—but smaller stores run by experienced booksellers could make the company healthier and give it the clear-cut identity it has lacked since its days as a true behemoth. The company is less prepared to step into the sizable shoes of Toys ‘R’ Us, but it has room to experiment with its remaining big box stores.

For now, all of these changes are a long way off. Barnes & Noble is dealing with a larger, more intractable problem: chaos. It has seen a succession of failures and a succession of failed CEOs. The challenge now is to find the thing that has been sorely lacking for some time: not success, but stability.