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The Sale of B&N Again Calls the Question of the Future of America’s Bookstores

18 June 2019

From veteran publishing consultant Mike Shatzkin:

The most important question in the world of trade publishing is “what will happen to the book trade”, meaning, primarily, the bookstores (but also the other retailers that sell books, the libraries and the wholesalers that supply them).

. . . .

[I]t was announced that Barnes & Noble was being sold to Elliott Management, which also owns and has reconditioned the Waterstones chain in the UK. That acquisition caught everybody’s attention and made two reporters call me as part of the research for their stories. (ReaderLink emerged as a late possible alternative acquirer of B&N, but that did not come to fruition.)

They wanted to know, “will Elliott save B&N?” The announced strategy, by James Daunt who will run both chains and who engineered the changes at Waterstone’s, is to repeat what appears to have worked in Britain. Diversify the stores from each other. Give more local autonomy for title selection and merchandising. Make them as different from each other as independents are different from each other.

My hunch is that it will take much more profound change to make the “big chain bookstore” model commercially viable in the US anytime in the future. What surprises me a bit is that this conversation about the future of bookstores, and just about every one I’ve seen, just doesn’t acknowledge the history of how we got to where we are.

The Barnes & Noble store network that exists today was spawned by investor enthusiasm in the late 1980s, which also financed the growth of B&N’s longtime competitors, Borders, which closed in 2009. When the book consumer of that time either wanted a specific book, particularly one that was not a current bestseller, or wanted to “shop” a category or topic to see what was available, it was a natural instinct to go to the store with the biggest selection, the most titles.

The fact that selection was a magnet became the driving reality the superstores were built on. The biggest independents had long carried a very large number of titles and now the chains, which had previously specialized in 20-25,000-title stores in malls, started building freestanding destination stores that carried 100-125,000 titles. The national wholesaler Ingram also kept expanding their title base, so both the chain stores and the independents could get rapid resupply support for most of what they carried.

The situation started to change when Amazon arrived in 1995 with the ability to deliver just any available book to any customer in as much time “as it took” (varied by the book and publisher, of course), with a “promise date” to tell the customer when to expect it. Since most needs for most books by most people are not immediate, over time online shopping, rather than looking for the biggest in-store selection, became the logical default for anything you weren’t sure you’d find. And in a multi-million title world of books (to which we have evolved over the past 20 years from the quarter-million title world we lived in before Amazon), that’s by far most of the shopping and has become most of the purchasing.

In addition to the shopping reality, the marketing reality has also changed. It used to be that word of mouth was a slow thing, taking the time it did to travel from person to person through conversation and personal interaction. The internet changed that; social media changed it on steroids. Now word of mouth can spread like lightning, and stop nearly as quickly as it starts. Social media can make a book, or a meme, very ubiquitous for a week or a month, and then disappear.

That means that there is a high premium on having a book available in as many places as possible for the period of its great fame, but it also means those books need to be rotated quickly. To maximize sales, they need to show up right away when they’re hot, and they have to relinquish their place of prominence to make room for the next thing that comes along.

What that all added up to is that the retail sector that is needed in the area of rising online sales is very different from the one we needed before. A massive selection is not an effective magnet anymore.

. . . .

[I]t will take more than diversification of the title selections and merchandising emphases to make the pretty large B&N stores thrive again. They need more smaller stores, not so many very large ones. Making the title selections more local is well and good, but the information that drives that has to be deep, sophisticated, digital, and reacted to very quickly.

. . . .

Britain is culturally and physically different enough from the States that it is hard to know whether a strategy that worked for Waterstones there can work for Barnes & Noble here.

Link to the rest at The Shatzkin Files

PG is familiar with the incoming CEO of Barnes & Noble, James Daunt, only through a variety of articles written about him that include quotes from Daunt.

PG’s general impression is that Daunt is British in a way that can lead to parochial views of the world and the United States in particular. From a brief scan of biographical information, Daunt’s father was a British diplomat and Daunt was educated at a 1300-year-old private (in the US sense) boarding school prior to completing his education at Cambridge. One profile mentioned that he presently owns three different homes.

Daunt’s only extended exposure to the United States that PG could discover was when he worked as an investment banker in New York City for four years in the 1980’s right after he graduated from college.

PG has no doubts that Daunt’s business instincts are well-attuned to the sensibilities of a typical British book purchaser, particularly in the upscale locations where he sited Daunt Books stores prior to being named CEO of Waterstones.

PG has his doubts about whether Daunt’s instincts will work as well for a Barnes & Noble in Omaha or Mobile as they do for a Daunt Books in Marylebone however.

At present and in most locations, working in a Barnes & Noble store is pretty close to a dead-end job. It’s a half-step above flipping hamburgers for working conditions, but Shake Shack isn’t on anyone’s list of public companies most likely to show up in bankruptcy court either. PG suggests that a Shake Shack manager is more likely to have his/her job five years from now than a manager of a Barnes & Noble is. And a Shake Shack manager may be earning more money as well.

PG suggests Daunt’s most important task will be to make the employees of Barnes & Noble’s retail stores feel like they are part of a business that is worth caring about and isn’t likely to lead to unemployment during the next few years.

Customers sense when the store staff feels like they’re in dead-end jobs.

Bookstores, Mike Shatzkin

22 Comments to “The Sale of B&N Again Calls the Question of the Future of America’s Bookstores”

  1. Terrence OBrien

    Maybe we should just ask what percent of the population wants to go to bookstores, and how it is trending.

  2. I don’t think staff is the problem. Location is the problem. Many B&N stores are of the freestanding big-box variety. From what I’ve seen, a Waterstones is a storefront on a classic street of shops, the sort of thing you walk past on your way somewhere and can stop into. B&N stores are boulders in seas of asphalt, and you either drive there on purpose, or you don’t.

  3. Felix J. Torres

    What most “concerns” me (in a theoretical sense, anyway) is Daunt’s comment about expanding B&N because of the US being “undershopped”.

    The basic strategy of going hyperlocal and putting daylight between the interests of the store and the interests of publishers strikes me as a positive but I can’t see B&N moving away from the abyss and re-starting growth without first shrinking by a lot. In both average store size and store count.

    The big store format can work in a couple dozen sites but for the other 600 stores they are better off stocking 25000 titles that average 6 sales a month than stocking 100,000 and averaging 2 sales per title. A lot of people seem to look at B&N’s total sales, in the Billion$$ and start drooling without considering that it costs more to sell that merchandise than they bring in.

    Growing the chain is more likely to increase costs (guaranteed, in fact) than to significantly increase revenues.

    Now, there is a theory that the Elliot objective is to simply bundle B&N and Waterstones for a quick IPO, get their investment, and let the new stockholders deal with the longer term consequences. Adding a whole lot of new locations quickly would in fact fit that strategy because new locations often experience a “honeymoon” effect during the first year, which is why chain stores are typically evaluated by looking at stores that have been open more than a year.

    So it’s not impossible we might see a(n illusory?) B&N growth spurt in 20-21 but it might be followed by a crash.

    We’ll know soon enough which road they’re taking.

    • The only way B&N could transition to, as Shatzkin says, “more smaller stores, not so many very large ones” would be to build out the small stores and close the large ones when their leases expire. That’ll take 10 years and lots of dough. They could go BK, pitch all of the big stores overboard and open up smaller stores, but that takes lots of dough too, and then you have to re-establish those new bookstores on people’s retail radar. There’s nothing they can do that doesn’t involve spending lots of money, and there’s not enough money in the endeavor that would justify that. They’re screwed.

      As was quoted 6 years ago, the leases are a millstone around their necks.

      https://www.thedailybeast.com/why-is-barnes-and-noble-getting-out-of-the-bookstore-business

      • Felix J. Torres

        They don’t need to close all the big bookstores but they do need to go bi-modal. Close most of the big ones and go smaller everywhere else. And they can’t phase it over ten years.

        The leases are a problem but leases can be broken.
        As for spending big bucks, that is a given no matter what they do. That is why the sale price is so “low”.

        Chapter 11 allows for many things and breaking leases to save the company is one of the more common ones.B&N should’ve gone Chapter 11 years ago.

        https://www.realestatelawyers.com/resources/real-estate/commercial-real-estate/will-declaring-bankruptcy-terminate-a-commercial-l

        During the Borders bankruptcy there were multiple buyers but only for 200 stores. Mostly the smaller ones. The same applies to B&N; they desperately need Triage. Once they get on a stable footing then they can dream of expansion.

        If they’re still running the same ratio of big store to small stores in a year they’ll be going under for sure. That’s why there is so much doubt about Daunt.
        Things would be more upbeat if he were coming in with a hatchet; morale can’t get any worse anyway.

        • I agree the only quick way out of their big box leases is bankruptcy.

          However, it would be a big hit for publishers because Barnes & Noble can’t be giving them sweetheart deals at the expense of other creditors in the bankruptcy.

        • Terrence OBrien

          Smaller stores are a reasonable response to shrinking B&M sales. Shelf space will decrease as sales continue to fall. Fewer shelves means smaller spaces.

          However, as that happens, look for headlines telling us about the vibrant strength of bookstores. We should watch to see how many of those articles cite B&M book sales trends.

          And catering to local tastes? I’d really like to see some data on local variances from national sales trends. Are reading tastes in Dayton or Denver really that different from those of LA or Atlanta?

          • Felix J. Torres

            The other advantage of smaller stores is they have to perforce focus on casual/social readers and everywhere books which is where their actual revenues come from. It aligns costs with revenue and that right there will reduce costs from fallow shelves.

    • Good observations, Felix.

    • > What most “concerns” me (in a theoretical sense, anyway) is Daunt’s comment about expanding B&N because of the US being “undershopped”.

      That’s a good point, it seems like Daunt has a terrible grasp of US population density. If anything, given that the US already has something like three times more mall space than Europe, doesn’t that imply it’s actually heavily “over-shopped?” Further, because of the low densities, a car is mandatory in most areas because you can’t easily walk to the store (unlike the UK?) Adding more stores in a low density area doesn’t seem like it makes sense. Unless his plan is to recreate B Dalton/Waldenbooks in every shopping center.

      • Interestingly, bookstores in malls might work again; if you walk through a lot of malls now you’ll notice they’re retooling to serve the actual audience that uses them most often, mothers with small children who have no other place to go with them. There are now little free play-places scattered in them with toys, along with the playgrounds that used to be typical. I remember walking in my local one the other day (after years of absence because I am no longer a mother with small children), and thinking, ‘oh wow, that looks so handy! I wish that had been around when my kid was younger.’

        A lot of the stores are odd, as well–not just clothing and food, but things like housewares, furniture, and even places to get your hair cut and tattoos done. Granting that shift in focus, I think a bookstore might fly.

  4. The question here is whether Daunt understands that there are things he doesn’t understand, and whether he’s willing to operate on that basis–and whether or not he makes his subordinates operate on that basis as well.

    • I think the real question here is if Elliott Advisors let Daunt do the same sorts of things that Alexander Mamut let him do. Daunt rejected publisher payola, which was a financial hit, and then localized bookstore purchasing, which took awhile to catch on. Mamut let him do all that. Will Elliott let him do anything similar to B&N – or will they reject that sort of pain?

      Daunt is dancing with a different partner this time around. What’s up in the air is not just what he will do, but what he can do.

      • On the other hand, it is stupid to hire a guy that does something well ad then tell him not to do that.

        Kinda like hiring an actor whose calling card is sarcastic humor only to force him to play a character straight with no humor.

        • This is corporate America we’re talking about, remember. That’s almost the M.O., especially for failing companies.

  5. Interesting comments by PG on staff. Waterstones is in fact having terrible problems with staff. They are certainly attracting some staff who love books, but they are paying them very poorly. As I recall the usual suspects including authors were calling on Waterstones to pay a “living wage”. Daunt’s response was that this was unaffordable. In interviews he essentially seemed to accept that many would move on, and that the company was offering fulfilling jobs. The dead-end job comments seem to be equally apt to describe jobs at Waterstones. As I understand what happened at Waterstones Daunt will likely give local stores significant autonomy and control over their inventory, for which they will be accountable. Such jobs may well be very satisfying. He wants good, enthusiastic and knowledgeable staff but is not prepared/able to pay them. He will expect that most staff will be there for a good time but not a long time. In the absence of salary and a career path, a challenging satisfying job will only retain staff for a limited time. The hope seems to be that you can replace knowledgeable and enthusiastic staff sick of the low pay and dead-end job with others. Perhaps part-time students will tolerate such positions whilst they are studying?

    • Using student labor to staff jobs with intelligent people at low cost is a longstanding practice in college towns.

      However, unless students have grown less flighty since PG was one (when dinosaurs ruled the earth), every semester, class schedules change/students hear about a better-paying job elsewhere, etc., and you get to train a bunch of new employees all over again so they can point customers toward roughly the right location to find a book and operate the cash register without getting locked out.

      So store managers are in constant training/fixing mistakes, etc., mode and have about five minutes a day to think about improving the store instead of preventing the entire operation from collapsing.

      Customers who walk into a McDonalds don’t have very high expectations from their interactions with employees. Customers who have patronized a good bookstore at some time in their lives have much different expectations about staff knowledgeability and service. If BN can’t provide a better experience than Amazon can, why bother and pay more at BN?

      Small local bookstores can get by with this mode of operations more easily than Barnes & Noble, because nobody outside of their immediate area has heard of them.

      However, Barnes & Noble is a big name and poverty wages combined with an inept local manager in one location can tarnish the national brand as well.

      Plus, college communities tend to be places where pro-union feelings are more common than other locations, so a couple of store employees could start a drive to unionize. Typically, local union representatives are happy to provide assistance and a picket line where called for.

      A store manager without much experience and under pressure to perform can easily violate laws surrounding union organizing activities. Throw in some accusations about employment discrimination against any of a variety of groups of people and you have a crowd of woke students making a lot of noise outside the store.

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