WINCHESTER, England — Rachel Murphy knows her customers well. The 26-year-old manager of the main branch of a Waterstones bookstore in this historic city, Murphy recently revised her store window display to highlight “Jane Austen at Home,” a new biography about the 18 th-century novelist timed to the bicentennial of her death.
Austen lived out her last days here and is buried in Winchester’s famous cathedral, one of Europe’s largest. Murphy targeted the display to appeal to her customers’ tastes for history, literary fiction and travel, so spotlighting the Austen book was a savvy marketing move on her part.
Nevertheless, it’s highly unusual for book chains to give a local manager the power to decide which books to promote. But Murphy’s freedom is not unique. All store managers for the London-based Waterstones, the United Kingdom’s largest bookstore chain, are free to curate and display books as they see fit.
In an era of bookstores on both sides of the Atlantic being hammered by online retailers, the autonomy managers enjoy at Waterstones is a big reason it has managed to turn its fortunes around from near-bankruptcy.
“They can do what they want because they know what their customers want,” says James Daunt, Waterstones managing director, explaining why he’s ceded so much independence to his managers. “We want each shop to be distinctive and different, to have its own personality.” The result, says Philip Jones, editor of The Bookseller, a trade magazine, is that “Waterstones resembles a chain of independents.”
The formula is paying off. In February, the bookstore chain announced its first annual profit since before the 2008 Great Recession. In the year to April 30, 2016, it recorded a pre-tax profit of $12.6 million on sales of $527.6 million. It sustained a $5.8 million loss the previous year.
In the U.S., competition from electronic retailers, particularly Amazon, has battered retailers, including bookstores. Borders (which at its peak also had 68 U.K. outlets), Waldenbooks and B. Dalton are among those that went belly up, while Barnes & Noble continues to struggle with weak sales.
Independent bookstores have been hard hit, too, according to industry trade groups, though they’ve rebounded somewhat in the states. Between 2000 and 2007, 1,000 U.S. independent bookstores went under, but at the end of last year, 2,311 were in operation, a 30 percent increase from 2009. But in Britain, the number of independents dropped 30 percent from 2012-16 to 867. Independent bookstores “are beloved in Britain,” Jones says, but they’ve not been very good at effectively using their independent status as a marketing tool.
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Founded 35 years ago as “a new breed of bookshop,” Waterstones was twice scooped up by larger companies. WHSmith, a stationary and book chain, bought it in 1993, but sold it to entertainment retailer HMV in 1998. By 2011 HMV was $219 million in debt and on the verge of bankruptcy. That’s when Anglophile Russian billionaire Alexander Mamut, a banker and investor, in a surprise move, took it off HMV’s hands for $68 million.
Mamut’s selection of Daunt — a 53-year-old Cambridge-educated former investment banker — to run the chain was even more stunning. Daunt is the owner of Daunt Books, an upmarket collection of six independent shops, and says that he’s “never had any love or respect for chains” and in his heart is still an independent bookseller. Yet he orchestrated Waterstones’ reversal of fortune. Why did he do it? Mainly to help save indie booksellers.
As Britain’s largest chain, Waterstones provides the infrastructure — the sales heft — that keeps afloat the small publishers that are the lifeblood of independent stores. “In a world of Amazon, Waterstones needs to exist to keep the others alive,” says Daunt, who has also vowed to not open a Waterstones in a location that would jeopardize an indie shop.
Although Daunt has taken a largely iconoclastic approach in running Waterstones, his first move came from restructuring 101: He cut costs. “We sacked half our managers and reduced staff significantly. It was a brutal necessity.” The move got rid of underperformers, he insists, and greatly increased productivity. The remaining managers, however, have full autonomy, so long as they meet sales targets.
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Under HMV, Waterstones’ response to Amazon and other online competitors was similar to that of some U.S. chains: It adopted what Daunt calls the “identikit” approach to retailing. HMV used a centrally devised planogram — visual representations of a store’s products — to ensure each of its stores looked the same and stocked the same books at the same prices.
Planograms are an efficient form of retailing that can work for some products, he says. “But that crushing uniformity really doesn’t work for booksellers. It was hemorrhaging customers. They had no reason to come in.”
To give his managers free rein, Daunt took a big financial risk. A longstanding practice among chain bookshops is to sell the best display areas to publishers, who then decide what books to promote and at what price. He pulled the plug on that scheme, which cost Waterstones $35 million a year in lost revenue and angered publishers.
Now his store managers can price books themselves and decide which ones to discount. Or not. Accordingly, the price of the same book can vary from store to store. For instance, asked if she would mark down the price of the Austen biography, Murphy, the Winchester store manager, reacted with mock horror. “Oh no, not Jane Austen! She doesn’t deserve to be discounted in Winchester.”
While store managers control their mix of in-store merchandise, overall stock ordering is still done centrally by Daunt and a team of buyers. They focus on books deemed browsable and eschew reference, academic and technical tomes.
“We’ve moved entirely away from those sort of books. They make for boring bookshops.”
Daunt also buys only a small number of new titles, waits to see if they gain traction with customers, and ramps up orders only if they do. “Daunt tightened up the supply chain,” Jones says, and that also annoyed publishers. “But as a result, his returns are going down.” Indeed, Waterstones’ return rate is now in the low single digits, compared to an industry average of 25 percent.
One other eyebrow-raising move came in 2015, when Daunt pulled Amazon’s Kindle e-reader from his stores. “Everyone though t he had gone a little bit mad,” Jones says. But Daunt says he didn’t ditch the Kindle until it was clear that the market for e-readers was starting to decline.
His shops today are focused on the more tactile joys of physical books.
“There is a market for e-readers,” Daunt says, “but they’ll never replace the feel and look of a real book.”
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