Lindsey Graham (4:48)
From Wonder E. I'm Lindsey Graham and this is Business Movers. In the spring of 2020, the COVID 19 pandemic spread across the globe and disrupted nearly every aspect of modern life. Thousands of people died every day, many more became sick and governments worldwide responded with unprecedented controls over the movement of their citizens. Businesses shuddered and uncertainty gripped the economy. For many companies that were struggling before the pandemic, COVID 19 would be the final blow. Many might have predicted that Barnes and Noble would be among that number. The largely brick and mortar retail chain had been struggling for years, fighting to stay relevant in the Internet age. Its former CEO, Leonard Riggio, had saved the company in the 1970s and turned it into a retail giant. But he had proven unable to adapt to the rise of online shopping. Stores had closed and revenues had dwindled as chief executive after chief executive tried and failed to turn the company around. But then, in the summer of 2019, Barnes and Noble was sold to new owners. Elliott Investment Management was a hedge fund specializing in corporate turnarounds. And to perform this rescue act, they looked for a leader. Across the Atlantic Ocean, the British bookseller James Daunt was not new to the challenges of running a struggling business. Before agreeing to join Barnes and Noble, he had already turned around the United Kingdom's largest bookstore chain, Waterstones. James had saved Waterstones by tearing up the old way of doing things, decentralizing and putting the focus back on what he thought mattered most, the books themselves. Now he planned to apply the same principles to Barnes and Noble. But James had barely gotten started when the COVID 19 pandemic hit. Barnes & Noble quickly closed more than 400 of its stores and furloughed or laid off thousands of employees. Like the streets outside its locations became eerily lifeless. But where others saw disaster, James Daunt saw a potential opportunity. The store closures could give him the time he needed to rethink not just Barnes and Noble's retail locations, but but its entire way of doing business. James had to get it right. Though. There would be no second chances for Barnes and Noble. The pandemic was either going to be a death knell or a lifeline. This is the third and final episode in our series on Barnes and Noble. Undaunted, it's a late afternoon in April 2020 in Hampstead, London. Two weeks into COVID 19 lockdowns. In his home office, 56 year old James Don prepares for a video call with an American publishing executive. James takes a sip of water from the glass beside him. He's about to break some news that may not prove popular and he can't help feeling a little nervous. James joins the meeting and the publishing executive waiting for him flashes a broad grin. James, good to see you. How are you? Keeping well so far? Yes, Thankfully, I'm just home like everyone else, driving my wife and kids crazy. I know all about that. You guys are in A pretty strict lockdown over there, right? I can't imagine this is how you expected your first months at Barnes and Noble to go. Not quite. I'm glad we can still meet like this, though. I guess the Internet's finally doing something for the book business, right? But yeah, I think it's important for us to maintain a good working relationship through this. You know, as soon as you guys are ready to reopen, we want to be there and ready for you, too. Well, that's what I wanted to discuss, in a way. Our relationship and how it might evolve from this point forward. I'm afraid you might not like it, though. Let me guess. You're talking about the co op deals. I am, yes. In a co op deal, publishers pay Barnes and Noble for featured shelving space in its stores. These deals rake in tens of millions of dollars for the company every year. But James doesn't like them. He was quick to leave similar deals at Waterstone when he got the chance, and now he wants to do the same thing at Barnes and Noble. The publishing executive smiles ruefully. Well, you know, even though I figured this might be coming, I was hoping you'd tell me you were taking a different approach in the U.S. and why's that? Well, the deals are just bigger over here. I figured for Barnes and Noble, they'd be revenue you wouldn't want to give up. Well, that's the thing, isn't it? These deals are actually costing us money. A lot of the so called best sellers we promote are not selling, and then they're returned to you unsold. That's a huge strain on our logistics and a huge cost we could do without. But candidly, even if they did make us money, I'd still think it was the right thing to do. I'd rather use all that shelving space for books our customers actually want to read. Yeah, but what if it turns out your stores make poor use of the space that whatever books they put in sell even worse? Well, if that happens, Barnes and Noble will go bankrupt and we'll all shut down. But that's the way we're heading anyway, without changes. That wouldn't be good for anyone, you included. No, it wouldn't. James has some leverage in this conversation because Barnes and Noble is one of the largest buyers of books in the country. It is in the publisher's interest for the company to survive. And both James and the executive know this. Well, what can I say, James? If you're telling us you don't want our money, who am I to tell you to take it. That's about it. And frankly, I think we have to put our trust in you that you know what you're doing. What you did with Waterstones was so impressive and, you know we're rooting for you, we really are. I appreciate that. I've got to ask, now what? Well, obviously we need to discuss the details further with legal departments and all the rest, but for now, I'm going to make several more calls like this one, and keep my fingers crossed that everyone else is as agreeable as you. James Daunt had four other meetings with large publishers lined up for that day, and all would get the same. No more co op deals and no more guaranteed shelf space. It was a major shift from the old way of doing things. But in all his negotiations, James had one key thing working in his favor. Barnes and Noble might have been ailing, but no one in the industry wanted it to die. During the COVID 19 lockdowns of spring 2020, James Daunt began implementing his strategy for turning around Barnes and Noble. As far as James was concerned, the route to success had to run through the bookseller stores. After all, they represented Barnes and Noble's one major advantage over Amazon, a physical retail presence. That didn't mean he ignored the company website. He knew that during the COVID lockdowns, it represented the only way Barnes and Noble could sell anything. So he quickly approved investment in the company's digital infrastructure and logistics systems. The overhauled website was more user friendly, with a wider selection of books available more quickly than ever before. But James had no intention of being drawn into another war with Amazon. Some of his predecessors as CEO had spent millions of dollars trying to beat the online retailer at its own game. That was not a mistake James intended to repeat. Barnes and Noble's website was more like a life support system, keeping the bookseller alive until the crisis passed and the real recovery could begin. But for that to happen, Barnes and Noble stores would have to change. James intended to use the same game plan that had been so successful with Waterstones in the United Kingdom, returning the company's focus to selling books and decentralizing responsibilities to individual stores. And to make these local reforms successful, James would need to make some changes at the national level first. After difficult negotiations, America's publishers all agreed to his changes to the co op deals. In reality, they didn't have much of a choice for the health of their own businesses. They needed Barnes and Noble to survive. They could only hope that in the long run, a healthier Barnes and Noble would be better for everyone's bottom line. But now that publishers no longer dictated what went on bookstore shelves, someone else would have to make those decisions. In the past, the answer would have been obvious. For decades, Barnes and Noble's head office in Manhattan had decided store and shelf layouts for the whole chain. But James strongly believed this one size fits all approach no longer worked. During the lockdown closures, he ordered store managers across the country to reorganize their stock in whatever way they felt would suit their local communities. And now that the co op deals were gone, it would be managers deciding what books went where. One store in Yonkers, New York, took the opportunity to move nutrition titles next to the cookbooks. Where previously they'd been on the opposite ends of the store, other stores chose to expand the variety of titles they held while cutting the number of duplicate copies. James was breaking the orthodoxy of big box retail, where consistency between stores had always been valued. And he didn't stop with how books were selected or shelved. As soon as he'd become the new CEO, James had known that he wanted to renovate Barnes and Noble stores. He had imagined the program as a rolling two year process in which groups of stores would close down for a few weeks at a time for refreshing refurbishment. But the pandemic accelerated those plans. With almost all Barnes and Noble stores already closed, James took the opportunity to move his program forward. During the first lockdown of 2020, over half of the chain's 614 locations were given a fresh new look. Barnes and Noble's store interiors had long been recognizable by their green carpets and matching green striped walls. But in recent years, some stores have been neglected and many of those carpets were threadbare and the walls dingy. But when store managers came to rip out the old carpets and strip the walls bare, James did not insist on similar replacements or even demand a certain style. What made sense for each specific location mattered more to him than a consistent company wide brand. But James didn't give managers an entirely blank slate. He provided guidance to ensure changes aligned with his broader vision for Barnes and Noble. Each store was provided with a large dumpster, and he encouraged them to remove non book merchandise and throw away bulky displays to make stores feel more spacious. He also personally reviewed the renovations in key stores, offering feedback and suggestions on each manager's proposals. His goal throughout was to find a middle ground, creating spaces that felt neither dictated by corporate policies nor entirely detached from the rest of the chain. Store managers reveled in this newfound freedom, but the changes James was making were less welcome. To others at Barnes and Knoll. As James continued to decentralize decision making to individual stores, some positions at the head office in Manhattan became redundant. He had to make the difficult decision to cut half of the company's corporate positions. Around 125 people lost their jobs. And that was not the only reorganization of the company's human resources. To cut costs, Barnes and Noble had previously replaced most of its full time store employees with less experienced part time workers. But James preferred his bookstores to be staffed with more knowledgeable booksellers. So Barnes and Noble also laid off about 5,000 part time employees in favor of recruiting smaller full time teams. By the summer of 2020, those new teams were ready to welcome customers back to their new look stores. And as the early lockdowns eased, Barnes and Noble began reopening. James Daunt's strategy was about to be put to the test, and individual store managers were the ones who would make or break the company. Now the freedom James had given them came with higher expectations. As he put it, the changes he'd made were not a free pass to incompetence. He expected managers to lead the turnaround from their stores, and James told them that they would all be judged on the results. Luckily for the managers and James, 2020 was turning out to be a boom year for the book industry. Stuck at home during lockdown, some customers found they suddenly had far more time to read, While others rediscovered the joy of books for the first time in years. As a result, book sales surged nationwide, rising 11% from the previous year. Genres like manga and graphic novels became especially popular, with sales in those categories growing by almost 500%. Meanwhile, the changes James had made to the co op deals quickly began to have the desired effect. Combined with the new freedom he granted managers over stock control, these reforms transformed Barnes and Noble's returns rate. Before the pandemic, the company was sending nearly 30% of its inventory back to publishers unsold. But once the co op deals were fully phased out, that figure dropped to just 7%. The reduction in unsold stock saved the company millions of dollars in shipping and logistics costs and freed up shelf space for more books that better matched customer demand. So by the end of 2020, it seemed that James was beginning to turn Barnes and Noble around. Customers were starting to return, and best selling books like former president Barack Obama's memoir A Promised Land were driving a return to profitability, Something Barnes and Noble had not achieved in a decade. The positive Results continued through 2021, with total sales up 3% and book sales up 14% compared with the pre pandemic year of 2019. So as the world began to hope that the worst of COVID 19 had passed, it seemed that James Dot had done it again. Through his bold decision making and the clear vision he'd had for the future of the company, Barnes and Noble had survived. But survival wasn't enough for Barnes and Noble took prove it was back for good. It needed to make a statement. Business Movers is sponsored by Attentive. Imagine for a moment if you got a message from your favorite brand and it's so specific and personalized it feels like it was created just for you. 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