Five thoughts about Waterstone’sPosted: March 29, 2011
Five very broad-brush thoughts about Waterstone’s future. Other models may apply…
1. Get the right owner
Would you want your pension invested in Waterstone’s? The future is profoundly uncertain, demand for the core product is falling, and no one can authoritatively predict the shape of the market three years from now. So no, of course I don’t want my pension invested in Waterstone’s. This isn’t a business for any institution that seeks stable returns and reliable growth.
What about another retail group? Well, the synergies that HMV ownership should have delivered (back office amalgamation, shared terms negotiation, brand cooperation) never amounted to a great deal – and indeed, these synergies usually deliver more on paper than they do in real life. WH Smith won’t be seeking to buy them back (BBS was about taking out a direct competitor’s sites and IP). What value would bookstores bring to a non-bookstore retailer?
How about private equity? PE investors’ motivations are pretty straightforward – it’s all about unlocking value. This might mean investing in brand development in order to open up new markets or increase a company’s dominance of its current field. It will certainly mean applying a tight screw to costs and infrastructure – never a bad thing in principle, as there is always bagginess somewhere in costs, but a tough call when a business is as challenged as Waterstone’s. And Waterstone’s doesn’t own much (leases, patents etc) that might be used to fund or anchor a debt purchase. So, never rule out the PE player who sees something others miss, but I would think there are better investments for most PE funds to make.
All of the above is caveated by price. £70m? £1? – or what point in between? Over 20% market share has a value, but as I wrote in my weekend post, what will be the costs of restructuring?
I’ve said before that bookselling is a poor career option if you want to get rich (there are exceptions, but not many); I believe that Waterstone’s will need a benevolent owner who places an intangible value on books and bookselling, and is prepared to fund and sit-out the turnaround and restructuring before determining any realisation on their investment. I may have mentioned this before (there is no shelf-life on my limited store of anecdotes), but there is a parallel between funding bookshops and funding other cultural treasures – paintings, theatres etc. Very little in The Arts runs according to the proper rules of the marketplace (and without DCMS and a small number of wealthy funders, there’d be much less existing at all). You wouldn’t expect a sculptor’s gallery or an experimental theatre to survive paying Westfield rents – why a bookstore?
2. Get the right locations
Tim Waterstone was right – go off pitch, and buy those “quirky” (dread word) locations that lack the square box characteristics most retailers prefer. There is no loner much point in having bookshops in shopping malls or in general high streets, surrounded by fashion, phones, fast food, phones and fashion – the occupancy costs are too high, and the customer profile too broad. Bookshops are going to have to become destinations again. You want to encourage dwell time (browsing), so that means easy enough to get to, easy enough (and cheap enough) to park. Bookshops are going to be for aficionados, not everyman.
3. Get the right mix
This is a tough one. What is the right product mix in the modern “general bookshop”? The superstore world-view of the “very best of everything”, competitively priced, is disappearing very fast in the rear-view mirror. The implication of the big publishers’ promotional focus in recent years suggests that sales of mass market thrillers, chick-lit, romps, celeb biog and celeb cookery from bookshops are welcome (and will still attract promo terms, of course), but the main game is with the supermarkets and the travel shops. What happens to the general bookshop economic model if those titles are sold in much smaller numbers, at a better margin, no longer dominating the Zone A space? I’d posit that most of those genres (gifting excepted) are among the most likely to transition to eReaders. So, what happens if you bring the offer down towards a Daunt spread – “yes, we have the third volume of Peter Kay’s memoirs, it’s in Biography and I can take you to it”, instead of “the Peter Kay table, bay, dumpbin, queue panel, and counter pack”?
Moving on from literary bookselling, what about the Children’s market? It’s robust and successful, and although pre-school apps may take a bite out of picture books, children’s books have a strong future in bookshops. Waterstone’s has relaunched it’s Children’s offer on many occasions – but I recall a summer afternoon in a non-Waterstone’s store last year, when a customer made the irony-free observation that “that’s such a beautiful children’s department, and such lovely books too. A pity those bloody kids are making such a racket”. To sell children’s books successfully, you have to sell to children (and to parents with children in tow) – a good offer can’t be sustained on sales to benevolent grandmothers.
And talking of noise, disruption and traffic – is the coffee shop model sustainable in smaller, quirkier, stores on sub-prime pitch. My personal view is, yes – but a less enervating offer than Costa’s would be welcome.
I’ll pass on the other “sidelines/non-book” offers. Jamie Oliver trowels or Michael Macintyre mugs have to earn their keep wherever they’re sold, but practically all bookstores sell elements of non-book, and it would be foolish not to continue to sell the right sidelines if the demand is there.
4. Get the right online offer
I’m going to guess here that the online sale of books through www.waterstones.com does little for the profitability of the whole company. I may be wrong, of course. So here’s an uncosted, run-the-bluesky-up-the-flagpole idea – how about a properly curated eBookstore? A big difference between a physical bookshop and an online store has always been that the former carries a selection, and the latter carries every single damn thing it can. This has been characterised as a strength of online, but what if wading through all that sludge is a weakness? What about an eBookstore that just carries a couple of editions of Sense & Sensibility, that eliminates the engineering textbooks and last year’s romances in favour of an offer that meets your customers’ needs?
Offering less, not more, feels counter-intuitive, and there may be an offer with a curated “shopfloor” and an indiscriminate “stockroom”. Whether the same approach works for physical books as well as eBooks, and how online selling crowbars its way into Amazon’s locked world, I don’t know – but a new approach, rather than a me-too, would be interesting to explore.
5. Get the right staff
Well, obviously. Whether we are talking about the staff who create the strategy, or the staff that face the customers, you need the right ones. Attitude and ability must come in a single package – you can’t afford one without the other.
The fashion chain Mango has just announced the adoption of a profit-sharing model; Blackwell announced a similar plan last year. The common factor between these businesses (and the daddy, John Lewis), is a benevolent family owner seeking a better way to lock in and reward the everyone in the business with an equable share of the proceeds. At New Waterstone’s, everyone will be all in this together (© D Cameron); there’ll be no short-term riches, but long-term satisfaction and the potential for long reward would be the very best basis on which to build the new business.