Barnes & Noble, the Next Chapter
Bloomberg Businessweek|March 09, 2020
Elliott’s plan for Barnes & Noble is to have it act more like an indie bookseller: Less clutter, more cachet
Thomas Buckley and Scott Deveau

Last fall, during a visit to Barnes & Noble’s flagship store in New York City’s Union Square, the British bibliophile James Daunt strode about the ground floor in oxblood loafers deploring the bookshop’s hideous appearance. The carpets were dusty, and the escalators had broken down. A cheap pine table was littered with trinkets and scented candles. A vase was wedged between new titles, its bouquet of sunflowers sagging in brown water. “I like the idea of the flowers, but you have to change the water,” Daunt said. “And you have to put in decent flowers—you can’t just go down to the petrol station and grab a bunch. I mean, look at it.”

Daunt has opened about 60 bookshops in his three- decade career, every one of them profitable, making him one of the Amazon era’s most successful booksellers. After founding Daunt Books, a popular, independent brand of stores in the U.K., he was credited with saving the country’s largest chain, Waterstones, from ruin by giving managers more agency over their inventory. Those credentials impressed Elliott Management Corp., a notorious $40 billion hedge fund better known for seizing an Argentine warship as collateral and berating corporate governance at Twitter Inc. and AT&T Inc. It acquired Barnes & Noble Inc. last year for $683 million including debt and appointed 56-year-old Daunt chief executive officer, the man in charge of its rescue.

In its 1990s heyday, Barnes & Noble’s superstores blended the sociability of a Starbucks with the bargaining talent of a used-car dealer. But two decades after Amazon.com Inc. capsized the bookselling industry, America’s largest chain of bookstores was flirting with bankruptcy. By the time it was acquired by the hedge fund, its footprint had been slashed in half to a little more than 600 stores, sales were in their seventh straight year of decline, and the company was hemorrhaging cash.

Elliott became traditional bookselling’s unlikely defender in 2018 after its buyouts of Waterstones and Foyles, a British chain that had been owned by the founding family for more than a century. For Paul Best, who runs a portion of the investment firm from its London office and has taken a shine to companies battered by the retail apocalypse, the distress at Barnes & Noble signaled that he was buying the clunker at exactly the right time. “The more disrupted the category, almost the better,” Best says. “Because if you’re still there after that, you probably have durability and you’ve demonstrated a reason to exist.” His research showed the book business had potentially reached a nadir: The e-book market had started shrinking in some countries; the overall value of physical books was rising; and America’s smaller bookshops were growing again. At three times the size of its closest competitor, and the only major chain left of its kind in the U.S., Barnes & Noble was the cockroach after the catastrophe.

No corner of retail has been more disrupted by the decline of the physical shop than bookselling. In 1995, JeffBezos began selling books on Amazon.com because there were more items in the category than in any other. He aimed to sell the majority of the 3 million titles that were circulating in print, more than 20 times the number carried by the largest physical bookshops. Today about two-thirds of all books in the U.S. are sold online, almost exclusively through Amazon. Barnes & Noble is fighting to keep selling 1 in 5.

It’s a dramatic reversal of fortune for a bookstore chain that itself was once considered the big, bad, ugly machine that corporatized the staid practice of bookselling. Founded 134 years ago as Arthur Hinds & Co., Barnes & Noble was acquired from U.S. conglomerate Amtel in 1971 by Leonard Riggio, a Bronx native who ran the business until 2002, expanding it from a single, now-defunct location on Fifth Avenue into a nationwide network. Under Riggio, the chain became the first bookstore to advertise on television in 1974 and, a year later, the first to steeply discount literature, selling New York Times bestsellers at 40% offthe publishers’ list price.

In the 1980s, Barnes & Noble acquired 798 B. Dalton stores and 22 Bookstop superstores, making it the largest bookselling chain in the U.S. It used its scale to negotiate lucrative marketing agreements with publishers vying to display their books in every shop’s front window. Such deals infuriated independent booksellers, which were unable to match Barnes & Noble’s prices. By 1998 the company was fictionalized in Nora Ephron’s You’ve Got Mail as Fox Books, a totemic big-box chain that threatens the independent bookstore across the street.

The chain’s clout in the publishing industry also meant it could comfortably fend offAmazon, which logged several years of financial losses before eventually turning a profit in 2001. Barnes & Noble was large enough that it could at least match the startup’s discounts as well as its breadth of inventory. Now Amazon’s bookselling operations account for only a fraction of the group’s annual sales of close to $300 billion, which are mostly derived from online retail and cloud computing services.

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