Barnes & Noble was recently acquired by a private equity fund. The deal closed just last week. Unlike many of the financial acquisitions, this purchase was not motivated by a desire to strip and kill the chain. Instead, the intent is to rebuild Barnes & Noble as a more tempting and profitable place for readers to go. Could work. Hope it does.
James Daunt, the man who will soon try to revive Barnes & Noble, once spent weeks in a noisy, arm-waving debate about the ideal angle of tilt for bookstore shelving. His opponent was an Italian showroom designer who argued, in a series of otherwise congenial meals in some of London’s best restaurants, that the shelf should be tilted four degrees.
Wrong, countered Mr. Daunt. The right answer is three degrees. Yes, the cover of a book catches a bit more light, and attention, if tilted at four degrees, especially on shelves below eye level. But the spine of a book starts to bend, ever so slightly.
“He prioritized presentation. I prioritized the condition of the book,” Mr. Daunt said, grinning to acknowledge just how wonky this discussion was. “These are my stores, so I went with three degrees.”
Mr. Daunt is talking about Waterstones, Britain’s largest bookstore chain, which he began to run in 2011, when it was on the verge of bankruptcy. A soft-spoken 55-year-old with a puckish smile and iron resolve, Mr. Daunt steered Waterstones out of a death spiral by rethinking every cranny of the company, from small (those shelves) to large (the business model).
The changes have filled Waterstones’ 289 shops, mostly in Britain, with books that customers actually want to buy, as opposed to the ones that publishers are eager to sell. And store managers have been given plenty of leeway to transform their shops into places that feel personally curated and decidedly uncorporate.
“He’s essentially created a series of independent bookstores,” said Tom Weldon, the chief executive of Penguin Random House Books U.K., “with the buying power of a chain.”
Some Waterstones locations, like tiny Southwold Books in Suffolk, aren’t called Waterstones. Others, like the shop on Gower Street in London, have cafes with added electrical sockets and are swarmed day and night with laptop-toting college students, most of them consuming more electricity than coffee.
“We’re playing the long game,” Mr. Daunt said. “When those students are rich and famous, they’ll buy books from us and the cost of the electricity will be paid back in spades.”
Defying predictions that chain bookstores were doomed in an Amazon world, the privately held Waterstones returned to profitability in 2015, Mr. Daunt said, and earns a steady 10 percent margin on sales of roughly $500 million.
Now comes the question that will rivet American book lovers as much as any page turner: Can he do it again?
Barnes & Noble has been sliding toward oblivion for years. Nearly 400 stores have closed since 1997 — there are 627 now operating — and $1 billion in market value has evaporated in the last five years. This week, Elliott Advisors, the private equity firm that owns Waterstones, closed its deal to buy Barnes & Noble for $683 million. Mr. Daunt will move to New York City this month and serve as the new chief executive.
He has said little about his plans, but his playbook at Waterstones offers clues about what’s coming. His guiding assumption is that the only point of a bookstore is to provide a rich experience in contrast to a quick online transaction. And for now, the experience at Barnes & Noble isn’t good enough.
“Frankly, at the moment you want to love Barnes & Noble, but when you leave the store you feel mildly betrayed,” Mr. Daunt said over lunch at a Japanese restaurant near his office in Piccadilly Circus. “Not massively, but mildly. It’s a bit ugly — there’s piles of crap around the place. It all feels a bit unloved, the booksellers look a bit miserable, it’s all a bit run down.
“And every year, fewer people come in, or people come in less often. That has to turn around. Otherwise …”
Bookstores on Drugs
Mr. Daunt will still have a hand in running Waterstones, which means he will soon become one of the publishing industry’s most powerful figures, and a literary tastemaker whose sway is exceeded only by Oprah Winfrey’s. If that sounds like hype, consider what has happened in Britain. Though Waterstones doesn’t take money from publishers to push specific titles, its headquarters still chooses books to promote, and it anoints a book of the month and a book of the year. Those selections almost always become best sellers.
“That is something Amazon doesn’t do, because its algorithm is passive,” said Andrew Franklin of Profile Books, the London publisher of Alan Bennett, Francis Fukuyama and others.
Amazon can tell you what you might like based on what you’ve already purchased, but it doesn’t spotlight unknown books that deserve a wide audience. It can’t make a literary star, something Waterstones now does with regularity.
“James really liked ‘The Essex Serpent,’” Mr. Franklin recalled, referring to the 2016 novel by Sarah Perry, “and he made it book of the year. It sold 100,000 copies.”
There are other ways that Mr. Daunt distinguishes Waterstones from what he calls “our friends in Seattle.” In January, during a speech before a group of booksellers in Venice, he likened Amazon to the boy-devouring lion in “Jim,” a poem by Hilaire Belloc.
“Nothing happens quickly, but it happens remorselessly,” he told the audience, in the methodical tone of a man telling a ghost story. “It never stops. It gets worse and it gets worse, and if you’re not careful, you end up being entirely eaten.”
He paused, allowed a small grin and added, “But we haven’t been entirely eaten.”
Waterstones has held its ground, stubbornly retaining a 25 percent market share, compared with Amazon’s 40 percent in Britain, Mr. Daunt said. Barnes & Noble has been losing its fight and now has about 8 percent of the American market versus 50 percent for Amazon, according to Mike Shatzkin, author of “The Book Business: What Everyone Needs to Know.”
Barnes & Noble flailed, in part, because it contested Amazon’s turf, investing heavily in e-commerce and losing more than $1 billion on the Nook, a competitor to the Kindle. Waterstones has spruced up its website “on a shoestring,” Mr. Daunt said, and it now accounts for 5 percent of sales.
But the company has largely persisted by selling the pleasure of bookstores first and books second. Because if a store is charming and addictive enough, goes Mr. Daunt’s theory, buying a book there isn’t just more pleasant. The book itself is better than the same book bought online.
“It just is,” he said. “You’ll enjoy it more. You’ll read it quicker. You chose it with your own eyes, your hands, your ears. Now it’s all about anticipation. If you buy a book from Amazon, there’s a little anticipation as you rip the tag off the envelope. But it’s generally slightly flat and disappointing.”
When Mr. Daunt took over at Waterstones, there was plenty of skepticism about him among publishers. His only previous bookselling experience was running what was then a chain of six stores that he had founded, Daunt Books. He had managed about 50 people. Waterstones employed 3,000.
Maybe he was in over his head.
Plus, he seemed a bit too erudite for a mass-market retailer; his style was more sommelier than salesman. And he had some radical ideas. He wanted Waterstones to forswear $38 million a year in “co-op fees” paid by publishers. The fees gave publishers the power to dictate which books would be stocked and where they would be displayed, in every single Waterstones.
Although best sellers in Truro, near the southern coast of England, are different from best sellers in, say, Belfast, the capital of Northern Ireland, these Waterstones were essentially interchangeable.
To Mr. Daunt, this was manifestly insane. He likened co-op fees to crack, an easy high that comes with an intolerable price.
“You can’t think straight on crack,” he said. “We were filling our stores with books that customers didn’t want.”
Publishers liked the co-op system because it let them increase the profile of any book they backed with a payout. They were just as smitten with then-ubiquitous “buy two get one free” promotions, a sales gimmick that Mr. Daunt despised. Customers, he argued, had a hard time finding a third book they really wanted.
Through months of tough negotiations, Mr. Daunt urged publishers to junk the co-op system and instead offer Waterstones a uniform discount on all books. Publishers would have to relinquish control over Waterstones’ inventory, but Mr. Daunt pointed out an upside.
At the time, more than 20 percent of Waterstones’ inventory was eventually mailed back to publishers, which cost them tens of millions of dollars in freight charges and labor every year. Let Waterstones choose which books to stock, Mr. Daunt said, and he would slash that expense.
“If you’ve got a better idea,” he told them at the time, “let’s have it.”
Today, just 4 percent of books are returned to publishers, and the figure is heading lower. Barnes & Noble, which is currently hooked on co-op fees, returns between 20 and 25 percent of books to publishers, a spokeswoman for the company said.
Without a co-op system to maintain, Mr. Daunt slimmed down his staff, both at headquarters and in stores. Productivity at Waterstones went up, too. Employees are selling books, not boxing them up to mail back.
Publishers are now in constant dialogue with Mr. Daunt and his buyers about upcoming books, often nine months before publication, relying on the strength of what is between the covers. Actually, the covers matter, too. Waterstones executives — and this is true of large chains around the world — will often suggest alterations, some large, others tiny. They recommended that the serpent on the cover of “The Essex Serpent” be changed from green to blue for the winter months when it was the chain’s book of the year. (“Sharper, colder, less fusty,” Mr. Daunt said.) It went back to green when spring arrived.
Publishers say the result of Mr. Daunt’s extreme makeover is a far healthier ecosystem for books.
“Customers see books recommended and know the recommendation is something meaningful,” said David Shelley, group chief executive officer of Hachette U.K. “The book isn’t there because of some deal.”