I was surprised to read this morning that Waterstones, the UK’s largest chain of bookstores, is undergoing a resurgence. At a time when all their competitors and brethren around the world are going bankrupt they have posted a profit for the first time since the financial crisis and are opening new stores.
There’s lots of things I love about this story.
- I once thought it inevitable that ebooks would wipe out paper books. I thought the reading experience would become equivalent and the convenience of ebooks and networked comments would win. As things have panned out, what I thought of as inevitable has not come to be – people do still like to read books and this article about Waterstones’ recent successes have made me pause and take note. It’s important for investors to have a clear and confident view of the future, but also to recognise when mistakes are made. As Marc Andreessen says we should have strong views weakly held. (As a side note, I have abandoned my Kindle and Kindle app to go back to books, I can’t put my finger on exactly why, but think it’s partly because books are easier to read, partly because it’s easier to flick through the pages of a book than an ebook, and partly because I can give books to people afterwards.)
- The Waterstones turnaround is a great story. In 2011 they were on the cusp of bankruptcy when Russia’s ‘least famous oligarch’ Alexander Mamut rescued the business. He brought James Daunt, founder of Daunt Books, a small chain of idiosyncratic books stores, in as CEO who’s booksellers perspective has made the difference. Contrast his background with Ron Boire, CEO of struggling Barnes & Noble who is a generalist retailer with Sears and Toys R Us on his CV. Daunt took the job because he loves books and knew that if Waterstones went bust many of his favourite mid-sized publishers would lose 60% of their sales and also go under.
- Daunt’s turnaround plan was very brave. When he started publishers were paying Waterstones £30m per year for prominent placement of their books. He threw that revenue away, focused on stocking titles people wanted and gave local store managers complete control over where they put their books. After these changes the percentage of books returned to publishers unsold fell from 20% to 4%.
- This is another example of the power of decentralising control – see 3.
- We have another reminder that pricing is often counter-intuitive. Daunt changed the discount policy from global to locally set noting that when it comes to books many people are price insensitive. The purchase price is not that significant compared to the value of the time they will spend reading the book.