In the latest SHuSH newsletter, Ken Whyte looks at the Barnes & Noble recovery story (discussed a couple of weeks back):
“Barnes & Noble Book Store” by JeepersMedia is licensed under CC BY 2.0 
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Back in 2018, the bookselling chain was losing $18 million a year. It had just fired 1,800 full-time employees. About 150 stores had been closed, leaving the company with 600. It had lost its fourth CEO in five years, this one to a sexual-harassment charge. The firm’s big digital initiative, the Nook e-reader, was a flop. The share price was down 80 percent.
Not only was the business failing: it was demoralized. As the writer Ted Gioia noted in a recent newsletter, B&N had lost faith in the public’s willingness to buy books from anyone but Amazon. Its leadership “shifted a huge portion of its floorspace to peddling toys, greeting cards, calendars, and various tchotchkes”. It doubled down on in-store cafes and even tried launching freestanding Barnes & Noble restaurants.
Just when it seemed B&N was certain to follow the path of its former competitor, the Borders chain, which closed in 2011, it was purchased for $638 million (US) by Elliott Advisors, a hedge fund.
SHuSH has been skeptical about the record of hedge funds in the cultural space. We are also skeptical of hedge funds in the retail space where they have a well-established record of buying chains, slashing costs, and driving them into the ground: Sears, Toys R Us, Payless Shoes, Radio Shack, Aeropostale, Sports Authority, etc.
Elliott Advisors is an exception.
The UK based-firm has a demonstrated commitment to bookselling (at least in the medium term — more on this later). It bought the Waterstones chain in 2018. Waterstones and its 283 stores had been rescued from near-bankruptcy in 2011 by lifelong bookseller James Daunt and a Russian backer. Elliott kept Daunt at the helm and a year later bought Barnes & Noble and added this second chain to his responsibilities.
Daunt acknowledged that Barnes & Noble was in rough shape when acquired by Elliott. Its stores were “crucifyingly boring”. But he was confident the chain could be turned around. There was no template or magic ingredient, he said. It was a simple matter of “running really nice bookshops”. To that end, he gives his stores unusual autonomy to develop their own personalities and tailor their stock to the interests of their communities.
Barnes & Noble stores have since dropped most of their crap: they no longer look like big-box flea markets. They’ve quit accepting payments from the major publishers to put their books on display, a practice that brought B&N revenue but left publishers in charge of what customers saw when they walked into stores. Local managers now decide how their books are presented based on what they think will appeal to their customers.
The company used the COVID lockdown to freshen up its dowdy stores. Managers were instructed to take every single book off the shelves and “weed out the rubbish”. Walls were painted, aged carpet replaced, furnishings upgraded. The result is a much improved browsing experience. Readers like to browse.
There were hard decisions, too. Daunt cut the B&N head office staff in half and shed about 5,000 of 30,000 employees.
All in all, it worked. Last spring, The New York Times reported that sales were up and costs were down at Barnes & Noble and that “the same people who for decades saw the superchain as a supervillain are celebrating its success. In the past, the book-selling empire, with 600 outposts across all 50 states, was seen by many readers, writers and book lovers as strong-arming publishers and gobbling up independent stores in its quest for market share … Today, virtually the entire publishing industry is rooting for Barnes & Noble — including most independent booksellers. Its unique role in the book ecosystem, where it helps readers discover new titles and publishers stay invested in physical stores, makes it an essential anchor in a world upended by online sales and a much larger player: Amazon.”
There are not a lot of reliable financial numbers available on Barnes & Noble because it is no longer a public company, but it reports that its 2021 sales in were up 3 percent over pre-pandemic times. Most importantly, sales of books were up 14 percent.
