53Bloomberg Businessweek March 9, 2020PHOTO ILLUSTRATION BY 731; PHOTOS: GETTY IMAGES (1); ALAMY (1)
Last fall, during a visit to Barnes & Noble’s flagship store in
New York City’s Union Square, the British bibliophile James
Daunt strode about the ground floor in oxblood loafers deplor-
ing the bookshop’s hideous appearance. The carpets were
dusty, and the escalators had broken down. A cheap pine
table was littered with trinkets and scented candles. A vase was
wedged between new titles, its bouquet of sunflowers sagging
in brown water. “I like the idea of the flowers, but you have to
change the water,” Daunt said. “And you have to put in decent
flowers—you can’t just go down to the petrol station and grab
a bunch. I mean, look at it.”
Daunt has opened about 60 bookshops in his three-decade
career, every one of them profitable, making him one of the
Amazon era’s most successful booksellers. After founding
Daunt Books, a popular, independent brand of stores in the
U.K., he was credited with saving the country’s largest chain,
Waterstones, from ruin by giving managers more agency
over their inventory. Those credentials impressed Elliott
Management Corp., a notorious $40 billion hedge fund bet-
ter known for seizing an Argentine warship as collateral and
berating corporate governance at Twitter Inc. and AT&T Inc. It
acquired Barnes & Noble Inc. last year for $683 million includ-
ing debt and appointed 56-year-old Daunt chief executive offi-
cer, the man in charge of its rescue.
In its 1990s heyday, Barnes & Noble’s superstores blended
the sociability of a Starbucks with the bargaining talent of a
used-car dealer. But two decades after Amazon.com Inc. cap-
sized the bookselling industry, America’s largest chain of book-
stores was flirting with bankruptcy. By the time it was acquired
by the hedge fund, its footprint had been slashed in half to a
little more than 600 stores, sales were in their seventh straight
year of decline, and the company was hemorrhaging cash.
Elliott became traditional bookselling’s unlikely defender
in 2018 after its buyouts of Waterstones and Foyles, a British
chain that had been owned by the founding family for more
than a century. For Paul Best, who runs a portion of the invest-
ment firm from its London office and has taken a shine to com-
panies battered by the retail apocalypse, the distress at Barnes
& Noble signaled that he was buying the clunker at exactly
the right time. “The more disrupted the category, almost the
better,” Best says. “Because if you’re still there after that, you
probably have durability and you’ve demonstrated a reason
to exist.” His research showed the book business had poten-
tially reached a nadir: The e-book market had started shrink-
ing in some countries; the overall value of physical books was
rising; and America’s smaller bookshops were growing again.
At three times the size of its closest competitor, and the only
major chain left of its kind in the U.S., Barnes & Noble was the
cockroach after the catastrophe.No corner of retail has been more disrupted by the decline
of the physical shop than bookselling. In 1995, Jeff Bezos began
selling books on Amazon.com because there were more items
in the category than in any other. He aimed to sell the majority
of the 3 million titles that were circulating in print, more than20 times the number carried by the largest physical bookshops.
Today about two-thirds of all books in the U.S. are sold online,
almost exclusively through Amazon. Barnes & Noble is fighting
to keep selling 1 in 5.
It’s a dramatic reversal of fortune for a bookstore chain that
itself was once considered the big, bad, ugly machine that cor-
poratized the staid practice of bookselling. Founded 134 years
ago as Arthur Hinds & Co., Barnes & Noble was acquired from
U.S. conglomerate Amtel in 1971 by Leonard Riggio, a Bronx
native who ran the business until 2002, expanding it from a
single, now-defunct location on Fifth Avenue into a nationwide
network. Under Riggio, the chain became the first bookstore
to advertise on television in 1974 and, a year later, the first to
steeply discount literature, selling New York Times bestsellers
at 40% off the publishers’ list price.
In the 1980s, Barnes & Noble acquired 798 B. Dalton stores
and 22 Bookstop superstores, making it the largest bookselling
chain in the U.S. It used its scale to negotiate lucrative market-
ing agreements with publishers vying to display their books
in every shop’s front window. Such deals infuriated indepen-
dent booksellers, which were unable to match Barnes & Noble’s
prices. By 1998 the company was fictionalized in Nora Ephron’s
You’ve Got Mail as Fox Books, a totemic big-box chain that threat-
ens the independent bookstore across the street.
The chain’s clout in the publishing industry also meant it
could comfortably fend off Amazon, which logged several years
of financial losses before eventually turning a profit in 2001.
Barnes & Noble was large enough that it could at least match
the startup’s discounts as well as its breadth of inventory. Now
Amazon’s bookselling operations account for only a fraction
of the group’s annual sales of close to $300 billion, which are
mostly derived from online retail and cloud computing services.
“No one was really sure that Amazon was going to last or
truly threaten brick-and-mortar-style bookselling, because all
it did initially was what any bookstore could do, which was, in
a sense, special-order any book in print,” says Laura Miller, a
professor of sociology at Brandeis University and the author of
Reluctant Capitalists: Bookselling and the Culture of Consumption.
“The idea of getting it delivered on your doorstep was not nec-
essarily so enticing that you would stop going to a bookstore.”Over the past two decades, that’s exactly what happened.
Since Amazon’s founding, the number of bookstores in the
developed world has collapsed. Crown Books entered bank-
ruptcy for the second time in three years in 2001, and Borders
filed for Chapter 11 in 2011, resulting in the closure of thousands
of stores. Books-a-Million Inc., the second-largest chain in the
U.S., went private in 2015 after losing 90% of its market value.
Barnes & Noble discontinued B. Dalton in 2013 after closing
down all its bookshops. Barnes & Noble Education Inc., the col-
lege bookstore division that was separated into an independent
public company five years ago, is expected to report its third
consecutive fall in annual revenue this summer.
By 2015, Amazon opened the first of its own 21 bookstores in
the U.S.—clinical data-driven spaces where titles are organized