April 27, 2018

Waterstones, the UK’s largest (and only) bookshop chain has been sold


It’s been the talk of the UK publishing industry for months… what fate awaits the only bookshop chain left in our country? It was announced Waterstones was up for sale in 2017, and yesterday the new buyer was finally revealed. As we’ve been speculating would happen, the chain was purchased private investment firm Elliott Advisors, which manages funds of around $35 billion (£25 billion), including investments in Dell Software, Game Digital, and ASG Technologies.

Waterstones has had a turbulent history. The chain was first established by Tim Waterstone in 1982. Waterstone had previously worked at WHSmith, a stationery chain that stocks books and has a long heritage (it began as a humble newsstand back in 1792). Waterstone opened his first store in Kensington, London; by ten years later, Waterstones had become the largest bookseller group in Europe. WHSmith, taking note, wanted in, and bought the company in 1993. In 1997, they sold it on to the music retailer HMV.

Things tootled along nicely for ten years or so, with a few managing directors coming and going, until trouble hit in 2011, when it was announced profits were seriously down. Where’s a Russian billionaire when you need one? Aha! Alexander Mamut, owner of Lynwood Investments, bought Waterstones for £53 million ($74 million). To put this in context, when HMV bought the chain in 1997 it was for a sum of £300 million ($419 million). That’s a serious drop in value, perhaps largely thanks to the internet, a noisy and slow information superhighway that invaded our homes in the mid-nineties. But Amazon’s evil empire soon took root, dominating book retail and slowly corroding all that’s good in the world. As Harry Mount put it for the Financial Times back in 2011:

On top of everything else, independent bookshops had to deal with Amazon, the e-book, and ruthless discounting by chains. No single bookseller, independent or chain, can match the size and low overheads of a regional Amazon aircraft hangar crammed with books. That battle has been lost…. If you play the game right, you can turn a profit precisely because you are charming, because you have the right choice of full-price books, and because you accept that Amazon will inevitably do some things better.

That was precisely Waterstones’s plan — but they needed someone to turn the tide. Enter James Daunt. Daunt owned a chain of successful independent bookshops (inspiringly named Daunt Books) across west London and was lauded as the possible Waterstones saviour. In 2011, Judi Bevan interviewed Daunt for the Independent:

Can James Daunt, favoured bookseller of London’s chattering classes, singlehandedly rescue the traditional British book trade from the jaws of Tesco, Amazon and digital books?

Daunt certainly intends to try, and he believes passionately in the cause. “I am doing it because it matters,” he says, dismissing motives of money or power with one of his diffident smiles. “Selling books is what I do. I am not interested in any facet of retailing apart from books. I am a specialist.”

“In a retail business employing 4,500 staff, the people really matter. They must be empowered and engaged,” says Daunt.

“The bookshops will become more autonomous so that people who work and shop there have a sense of ownership.”

A fine dream indeed. Seven years later, has it come true? For me, the words ring somewhat hollow. Back in 2013, Waterstones underwent a major restructuring, which resulted in mass firings. Lisa Campbell and Joshua Harrington reported for the Bookseller at the time that 266 out of 487 managers had left their posts. As for the shops being more autonomous, central buying still underlies the business. As Daunt told Campbell and Harrington, “What matters to a bookseller is that [a bookseller] has total freedom to display and sell the books they want — not that they spend time seeing reps and tapping on computers,”

But if they’re only presented with a generic list of titles they can order from, where is the freedom?

Whatever the methods, the fruits of Daunt’s labour are showing. As Lucy Douglas reported for the Telegraph, Waterstones lost £37 million in 2011. It continued to haemorrhage money until 2016, when a pretax profit of £9.8 million was finally announced. This grew to £18 million in 2017. Undoubtedly, the staff cuts helped make this possible. Waterstones have also drastically reduced their return rate: in 2011 they returned about a quarter of books back to publishers. That’s been reduced to two or three percent.

So what of the future of Waterstones now that it’s once again been bought? The only clear outcome so far is that James Daunt will stay in place as CEO, along with his key leadership team. Paul Best, head of European private equity at Elliott Advisors, made a statement, qupted by Alison Flood at the Guardian, that the firm would be “supporting James Daunt and his entire team over the long term as they continue to build and grow the business… As the leading physical book retailer in the UK, Waterstones is a mainstay of UK high streets and has a huge and loyal customer base.”

Daunt told Lisa Campbell at the Bookseller:

“I am pleased the sale has taken place and I am pleased for Alexander Mamut, who took a huge risk in buying the company in 2011. I think it is positive to have a domestic owner. A new ownership does bring a different energy to the company right from the beginning and this owner has deep pockets.”

It is to be celebrated that the future of Waterstones is secured, and that the chain will remain. Conditions, however, remain tough, which in turn impacts publishers — particularly small, independent ones. The low return rate means Waterstones is ordering fewer books than they once did. Their current model is risk-adverse and favours sure-fire bestsellers. They feature “books of the month” in-store and online — but of the ten most recent titles, four come from HarperCollins, four from Penguin Random House, one from Simon & Schuster, and only one—one—from an indie publisher, Old Street Publisher. The pattern is unmistakable. And we reported last year on Waterstones’s extensive collusion with big publishers, which isn’t helping either.

We definitely want and need for Waterstones to continue and for James Daunt to continue to forge a profit-driven future. But if Waterstones remain reactive rather than proactive, only ordering books that are obvious hits rather than helping to make hits of books worth fighting for, and if they continue ignore us indie publishers whose little voices can get lost admist the bawling of big conglomerates, the publishing world, and the variety of books available, will continue to shrink.



Nikki Griffiths is the managing director of Melville House UK.