Having spent more than 30 years working in and observing the retail sector, I’ve been following the appointment of James Daunt as CEO of US bookseller Barnes and Noble, with interest. The company has been acquired by the parent of Waterstones, Elliott Advisers (UK), and Daunt will stay on as managing director of the British chain as well as undertaking his duties across the Pond. Whatever else you say about him, he’s not afraid of a challenge.
Waterstones, which Daunt has been in charge for more than eight years, is a fascinating case study in how major brands should respond to the challenges which have emerged to high street retail. Everyone can sketch out what these challenges have been: the boom in online sales (especially of books), the general economic downturn after the financial crisis, the ratchet effect of business rates on physical estate and the rising cost of rental. When Daunt took over in 2011, Waterstones was exhausted, physically, financially and emotionally. It was owned by HMV, who were prepared to offload the business for £50 million. Salvation came in the form of Russian oligarch Alexander Mamut, who bought the stores and installed Daunt to run them.
The playbook that Daunt used has become familiar to anyone with a keen eye for business. Branches of Waterstones were encouraged to develop their own distinct character: managers were allowed to arrange the interiors how they liked, the individual staff hand-wrote book recommendations, bargain offers were reduced to emphasise the worth of the books, and there was even a handful of unbranded stores opened in smaller locations like Deal and Weybridge. Daunt introduced regionally centralised buying, which cut return from a quarter to just 7%. “Returned books are pulped,” he told the Evening Standard with distaste. “It’s a disgrace.”
Guess what? It worked. Eight years later, Waterstones is no longer making a loss. People are buying physical books, even if they can get the same product for a lower price from an online retailer. The determination and belief that the atmosphere of traditional bookstore, with well-stocked shelves and knowledgeable staff, is an attractive retail proposition has been vindicated. So now Daunt has been sent to America to see if the playbook works there.
Other fixtures in the high street constellation have managed to adapt and survive by thinking creatively and, sometimes, counter-intuitively. River Island, a venerable institution which has been going since the 1940s, has bucked the online trend by embracing individuality and diversity under its “Labels are for clothes” campaign. The result has been a boom in sales and value score among 18- to 34-year-olds at a time when younger shoppers have more choice than ever before.
Next has managed a similar survival strategy. Although profits have fallen, sales, in-store but especially online, have risen, and the company’s BrandIndex value-for-money score has increased from +12 to +14 over the past four years. It has overtaken Marks and Spencer as the UK’s largest clothing retailer, and its appeal is particularly strong with Generation X, who are more likely to have young children and to say their main motivations when choosing where to shop are cheap prices and good quality products. Next’s partnership with TV star Emma Willis has proved especially effective, as she is very well-regarded by that demographic.
All of this proves that the grandes dames of the high street can survive and prosper. But they need strong, stable leadership (Daunt at Waterstones, Lord Woolfson at Next), an unremitting focus on their core product and a willingness to embrace innovation and disruption, even when that involves a kind of old-school revivalism as has happened at Waterstones.
So can James Daunt breathe life back into Barnes and Noble? The challenges are not trifling. CEO Demos Parneros was dismissed last summer for sexual misconduct; the chain is losing millions of dollars each year; and its in-house Nook e-reader device proved a commercial flop. Incredibly, the chain has no physical presence in Washington DC. Everything about it smacks of a company in decline. What’s the plan?
There will need to be a review of the footprint. The authenticity and ‘independent’ feel of Waterstones branches will be difficult to replicate in warehouse-like properties in strip malls. But more than 200 of Barnes and Noble’s leases are due for renewal in the next two years, so the opportunity for change and refocusing is there. Daunt will need to seek better terms from publishers to reset the relationship between provider and seller, and the backing of Elliott may allow him to do that. The interiors of stores will also require work, allowing managers to set their own priorities and arrange their own stock.
On a recent visit to New York, James Daunt summed up his task at Barnes and Noble: “Good bookstores are fabulous things and the problem with this one is, it’s just not a very good bookstore.”
In theory, the task is achievable. Daunt has proved that in the UK, as have other retailers. But, as Woolworths and BHS and Debenhams can attest, there is nothing inevitable about surviving in a brutally competitive market. The revivification of Barnes and Noble will make saving Waterstones seem like the blue slopes.