040: Undaunted

In This Episode: Can anything be done to stem the decline in bookstores from Amazon’s relentless domination? Yes: Uncommon Sense is already reversing the trend, and in a surprising way.

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The number of bookstores in the United States has fallen dramatically in recent years. In 2004, there were 38,539 brick and mortar stores, both independent and chain stores. Every year since then there have been fewer; in 2018 the number was down to 22,586, more than a 40 percent drop. Frankly, I was surprised the decrease wasn’t more. But Uncommon Sense may reverse the trend, and in a surprising way.

Welcome to Uncommon Sense. I’m Randy Cassingham.

When such statistics about the U.S. book market are quoted, most point fingers at Amazon, and not without reason. Amazon originally started as an online bookstore, going online in July 1994 — just a few weeks after This is True. By early 2014, they sold 41 percent of all new books. In 2014, there were 26,238 bookstores in the U.S., but one of them made more than 40 percent of the sales. It’s still growing: today it’s 50 percent. That’s staggering. Unlike most bookstores, Amazon has systems in place that allow them to take an order for a book, print it instantly, and ship it overnight, just like they had it in stock. That’s an incredible advantage.

In the face of that, Barnes and Noble, the biggest bookstore chain in the U.S., has been struggling, its sales declining year over year, and their stock price following suit, losing $5 billion in value over the past five years. In 1997 they had over a thousand stores; only 627 Barnes and Noble stores are still open. A report I saw last year noted that their sales had dropped in 20 of the previous 23 quarters, and they were losing more than $5 million per month. Their share had dropped to just 8 percent of U.S. book sales.

The situation was much the same in England. Waterstones, Britain’s largest bookstore chain, was seeing a massive slump in sales.

But wait: this podcast is called Uncommon Sense! Where is it in this case?

040: Undaunted
Daunt in 2016. (Photo: Waterstones)

In 2011, Waterstones hired a guy named James Daunt to turn things around. Within just four years, he took them from facing bankruptcy (if things kept sliding) back to profitability, even as Amazon was ramping up book sales in the U.K.: Amazon now sells 40 percent of the books sold in Britain. But Waterstones? Not 8 percent like Barnes and Noble in the U.S., but 25 percent of all books sold in Britain.

How did Daunt fight back against the Amazon juggernaut? He paid attention to the details in the pursuit of one overriding goal: serving the customers — the people who buy books!

For a tiny example, the chain had hired a showroom designer to help Waterstones’ 289 stores show their merchandise better. The designer specified that for ideal visibility, the bookshelves that show the front of the books should be tilted back by four degrees. But Daunt had also studied the issue, and disagreed: he said they should tilt back by three degrees.

Oh come on: what possible difference could one degree make? This: the books held up fine to three degrees, Daunt said, and yes they could be seen better when they’re tilted back to four degrees, but four degrees is where the book’s spines begin to bend, and he didn’t want to damage the merchandise: people buying new books wanted those new books to be in new condition!

Daunt said the designer “prioritized presentation. I prioritized the condition of the book. These are my stores, so I went with three degrees.”

Of course, he has also made much bigger changes: he fought back against publishers, who for years have paid bookstores to feature new titles so that shoppers see them at the front of the store. Bad idea, Daunt said. That’s called “co-opt” — publishers dictating what titles stores should carry, and in what quantity, by paying them. Daunt likened that to crack cocaine: Waterstones was being paid $38 million per year by publishers to feature specific books. “You can’t think straight on crack,” he said. “We were filling our stores with books that customers didn’t want.”

Worse, when the promotion was over, the stores had to ship the unsold copies back to the publisher, at great expense. Worse, bookstore employees were spending a lot of time boxing up books to ship them back. Industry wide under this system, bookstores ship 20 to 25 percent of the stores’ entire inventory back to publishers because readers don’t want to buy them.

That’s the way it has been in bookstores for years. The one book that I sold to a major publisher, the True Stella Awards, was marketed that way. Penguin paid bookstores to put copies on “end caps” — one level of the pay-to-play model with bookstores. I just wish they had spent the money instead on marketing that actually worked.

It’s not surprising that Daunt didn’t like that game. But unlike most booksellers that had become dependent on that drug, he pushed publishers to reengineer the process using Uncommon Sense. How? He proposed that instead of paying his stores to hawk certain titles, why not give them a higher discount on all books? But what’s in it for the publishers? The percentage of unsold books being shipped back would drop dramatically, he promised, because his stores wouldn’t have to accept books they knew their customers wouldn’t buy, at least in the quantities the publishers forced them to stock. And, he said, “If you’ve got a better idea, let’s have it.”

After months of negotiation, publishers accepted Daunt’s idea. Sure enough, sales jumped dramatically because now stores could order books that customers did want, and not spend so much time and effort shipping back books customers didn’t want. And just as Daunt predicted, Waterstones’ book returns dropped from more than 20 percent of their inventory to just 4 percent. As the company fine-tunes their purchase decisions, even that number is still dropping.

Meanwhile, Waterstones needed fewer employees packing up books for return, saving cash, and remaining employees, who like their jobs a lot better now, have more time to give more attention to customers, boosting customer satisfaction. Sure enough, in just four years Waterstones returned to profitability, earning $50 million on half-billion in sales.

There is, of course, another piece to the puzzle: what books to order? Daunt thought that each store’s manager was more likely to know what books their customers wanted, and he is letting them decide what to order. What a concept! “Customers see books recommended and know the recommendation is something meaningful,” said David Shelley of the U.K. arm of book publisher Hachette. “The book isn’t there because of some deal.”

Daunt lets managers set up their shops the way they want, too, making the spaces more inviting to the people who buy books: readers! Tom Weldon, the U.K. CEO of Penguin Random House Books, observes, “He’s essentially created a series of independent bookstores, with the buying power of a chain.”

Seeing the Uncommon Sense here? Bookstores were accepting money from publishers to the detriment of their customers, so it’s no wonder the bookstores were slowly dying. Rather than play by the publishers’ rules, or trying to compete head to head with Amazon online, Daunt instead moved Waterstones to play with a different playbook: making its bookstores an inviting place for book lovers. And it’s working.

So why can’t Barnes and Noble do that? Daunt says that B&N stores are “a bit ugly — there’s piles of crap around the place. It all feels a bit unloved, the booksellers look a bit miserable, it’s all a bit run down.” Ah, the power of British understatement. The result, he said, is that for B&N, “every year, fewer people come in, or people come in less often. That has to turn around.”

Well, maybe now it will: the private equity company that owns Waterstones has bought Barnes and Noble, and they’re bringing James Daunt over to this side of the pond as B&N’s CEO to turn them around the same way he did with Waterstones. With a focus on customer experience, quality, and — well — clearing out unrelated merchandise cluttering their stores (what Daunt calls “piles of crap”), not to mention stocking books that customers actually want to read, they have a chance, even in the face of Amazon.

Because brick and mortar bookstores have an advantage over Amazon, if they choose to leverage it: human employees who love books and can recommend new titles to readers that they didn’t know about. Not because of a cold algorithm based on what you’ve bought before, but personal recommendations by people who have actually read the books they recommend. Just like bookstores did in the olden days.

When a book is sold this way, Daunt says, it’s better than the exact same book bought online. “It just is,” he said. “You’ll enjoy it more. You’ll read it quicker. You chose it with your own eyes, your hands, your ears. Now it’s all about anticipation. If you buy a book from Amazon, there’s a little anticipation as you rip the tag off the envelope. But it’s generally slightly flat and disappointing.”

Maybe, but hey: it’s working for Waterstones, and maybe it will bring the magic back to B&N too. Amazon may have powerful algorithms, but Daunt is bringing Uncommon Sense back to the bookstore world. And not a moment too soon. Daunt, who is 55, has the time and the mandate to turn things around, and that’s a very good thing.

It’s sad that it took Uncommon Sense for bookstores to realize that 1) they can’t compete on Amazon’s playing field, so they need to emphasize what they can do that Amazon can’t; 2) empowering their book-loving employees to help book-loving customers (duh!), and 3) wean themselves off the publishers’ crack — co-op money — that was making them less customer centric. So yeah, it’s sad that it took Uncommon Sense for bookstores to realize all of this, but it did, and Daunt has reset the rules so real bookstores can compete in Amazon’s world, and maybe take back some of that market share.

The Show Page for this episode is thisistrue.com/podcast40, where you can also comment. Please do tell a thoughtful friend about Uncommon Sense: that helps spread more thinking to the world.

I’m Randy Cassingham … and I’ll talk at you later.

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2 Comments on “040: Undaunted

  1. Great story, about marketing and attention to detail. And books.

    Perhaps similar stories in other industries? including internet? (which you do so well)

    That’s part of the idea here: showing how Uncommon Sense can be applied anywhere. True is “simply” a newspaper feature column updated for the Internet era. Any idea can be adapted to new industries or circumstances. -rc

  2. I’m wondering when the B&N stores will get the Daunt turn around. I’ve been in a B&N store lately and they seem to have become toy stores versus book stores. Not a terrible idea since Toys R Us is gone, but not the reason I go into a book store.

    The sale was announce in June, but I don’t know when the new company takes over, and then when changes can start. But it’s coming! -rc


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