Rapture at Waterstone’s

The world hasn’t ended, but at Waterstone’s the older order departeth, and a land of milk and honey is promised for the future.

Of course, the Alexander Mamut deal hasn’t been finalised yet, so Waterstone’s staffers have pulled on their purple tee-shirts again this morning, but a slight sense of unreality surrounds the aftermath of Friday’s announcement.

James Daunt is a discreet man – there has tended not to be an over-oiled Daunt crowd at the Nibbies, banging tables and bellowing their approbation at award winners.  His JP Morgan/London’s-favourite-bookshop CV is mightily impressive – he’s known for being someone who quietly gets on with what he wants to do.  A brief interview with The Bookseller paints a picture of a man with greater patience and depth than many retail leaders.  Stockholding (and, one imagines, range breadth) will improve, and the purple shirts and canned music may be going away, but Daunt is choosing his words carefully:

“It may be that some [branches] prove irredeemable—the real question is: is there room on our high streets for 300 stores and I believe there is.”

These are brave and bullish words in the face of the current pace of change.  Wealthy and educated London has been much better insulated from the changes to the trade than any other part of the country – witness Foyle’s expansion and Hatchard’s ability to stick to their knitting in the midst of the HMV whirlwind.

However, shops will close – must close.  Archie Norman reminded the retail trade earlier this year that a strong retailer is churning its portfolio through good times and bad, and that lopping off the worst 10% of stores should be a constant activity for any chain.  With 300 stores, Waterstone’s will have at least 50 that are in sight of lease-ends, plus many more that are acknowledged to be duplicates, poorly located, poorly configured, or just tatty and run-down.

Clearly there is going to be a new strategic direction at Waterstone’s, and the break with HMV and “chain practices” will be marked.  But what kind of owner will Alexander Mamut be?  Foreign ownership of well-loved British companies can follow many courses.  Three recent examples are the shamelessness of Kraft at Cadbury; the hard words and rigorous work ethic of Tata at Jaguar-Land Rover and Corus; and the cash-splashing trophy chasing of Roman Abramovich at Chelsea FC.  Unless Mamut is prepared to follow the Abramovich model, cuts and changes will have to be made, as the commercial environment for bricks and mortar bookshops continues to get more difficult.

Amazon has today announced the appointment of Larry Kirshbaum, former CEO of the Time-Warner Book Group, to the new position of Publisher.  They have launched two specialised ebook imprints in the last couple of weeks, Thomas & Mercer (crime and thrillers) and Montlake (romance – you have to love those “heritage” names, with shades of Lymeswold).  Amazon is moving faster than it ever has before to redefine the book industry from author to user; it’s massively weakened bricks and mortar in the US and the UK, and is moving closer to my spoofy take on the future of publishing from a couple of weeks back.

What to do, then, with those 300 bookshops?  Or 200 bookshops, or 100 bookshops?  This is Waterstone’s one golden opportunity to get it right, and I believe it has to retreat from no-holds-barred competition at the pulpier end of the market, and recreate “proper” bookshops.  Perhaps this is fools’ gold, in light of Amazon’s actions, but head-on competition with supermarkets and WHS, slashing prices on Katie Prices, is not the future for this chain.

Consider Harry Potter.  HP3 (Azkaban) was probably the last book in the series on which specialist chains made money.  After that, we had four more books generating vast, instant revenues, but sold at or near to purchase price, with the unique on-costs of midnight parties and other paraphernalia.  Potter releases sucked the oxygen from the rest of the children’s book market for 2-3 weeks around release, and  a greater proportion of sales went to supermarkets (often sold at or below cost, but mitigated by a full trolley of groceries) and Amazon with each new title.  Harry Potter was wonderful in so many ways, but for specialist retailers, it turned into a mugs’ game.

Many indies, however, stood aloof, and sold Potter at or near RRP.  Total sales may have been 20 units for a store, but the P&L benefit of, say, £150, was better than any multiple (and better yet if the indie bought their stock from Asda…).  I suspect that this is the route Waterstone’s will have to follow in the future – honest pricing for people who love books and love bookshops; get off a dependence on celebrity biography, celebrity cookery and celebrity fiction on wafer-thin margins, and sell fewer, better, more profitable books instead.  Sales will be lower, shop numbers fewer, but – assuming the race to digital plateaus, and the printed book doesn’t just become a collectors’ novelty – sustainable.  (Personally, I’d also be lobbying to eliminate RRP, but that may just be me.)

And digital?  Very, very difficult.  But Barnes & Noble is potentially changing hands, and this is an opportunity to create a shared (but country-specific) online and digital platform, with a reader (the Nook) that users rate highly.  That’s easy to write, tougher to deliver – but with Amazon, Apple and Google all thinking global, booksellers have to do the same.  And perhaps foreign ownership could provide the spur.