A hedge fund buys out a struggling retailer on the verge of bankruptcy. It’s a story told so much it has become a cliché. Naturally, one would expect that the next step is to gut the corporation, rob the employees of their pensions, and sell off whatever tangible and intangible assets they can get a few bucks for. But in 2019 when Elliott Management purchased Barnes & Noble Booksellers for $638 million, something different happened.
Elliott had already purchased the British bookstore chain Waterstones a year earlier and put James Daunt in charge of its turnaround. They handed over the B&N reigns to Daunt, and he continued to work his magic. What Daunt did at B&N challenges conceptions about hedge fund takeovers and went against the conventional thinking about marketing for large retail chains.
Large chains typically aim for consistency across all locations. This helps customers know what to expect and avoid frustration, and it keeps local store managers or franchise owners from going rogue and doing something that counters the companies values or strategic goals.
Daunt took the opposite approach. He reduced micromanagement of the stores and put local managers in the driver’s seat. Local stores now run their own social media accounts and curate inventory and displays that their managers and employees feel are most interesting to their local customers.
I have seen this in action at my local store in Indianapolis. The employees post fun videos to TIkTok and Instagram, promoting books and book culture and generally having fun around the store. I recognize these workers when I’m in the store and sometimes talk to them about books. They are passionate about what books are on the shelves because they play a role in selecting books and setting up displays.
During the pandemic shut down, many stores renovated, and I have never seen two stores that look the same. This adds to the indie feel that B&N is bringing back to its stores. Instead of having one consistent look designed by a multinational corporate marketing team, each store feels like a special place with its own character. And each local team makes its own decisions about how to set up sections and displays.
In another retail space, this might drive customers nuts, but customers want to get lost in a bookstore. I certainly do. When I am in another city, I love to visit their B&N and explore my favorite sections of the store to see what different books they carry. I always find something new.
Daunt has tapped into something special, and he has done it at the perfect time. Bookstores as a whole are making a comeback. 2021 was a record-breaking year for book sales in the U.S., just as B&N was done rolling out their new approach and reopening stores after the pandemic.
What I love about this is that local boutique stores are making a comeback at the same time as B&N. B&N’s success does not seem to be at their expense. There has been a surge in new bookstore openings here in Indianapolis within the last 5 years. Every neighborhood seems to have at least 1 now. And in some parts of town, you can walk between multiple bookstores in the same area.
The amazing recent news that drove me to write this story is that B&N’s growth is continuing to flourish, 5 years into the Elliott takeover. B&N is on track to open 60 stores this year. Where else in brick-and-mortar retail do you see growth like that these days? Despite a pandemic driving more business online, people have somehow forgot that Amazon was once a bookstore, and every bookstore I visit is crowded with people who look genuinely joyful to be there.
Another trend I have noticed is that many readers are moving back from ebooks and audiobooks to hardbacks and paperbacks. This is certainly anecdotal, but a survey of the Facebook Men’s Book Club group last week showed that of 241 readers, 57% read hardbacks and paperbacks, while 24% read ebooks and 19% read audiobooks. FWIW, I voted for all 4 because I read every way I can!
Elliott Management’s takeover has been a pleasant surprise in that it has resulted in a turnaround of the company–rather than a liquidation–and a more customer-focused approach–rather than one-size-fits-all scaling to cut costs. It is an excellent example of a large company finding success with a boutique model.
So was Elliott’s takeover of Barnes and Noble a good thing? The economics certainly look right, but one group of stakeholders that has been ignored thus far in this story is the employees. I have seen little media coverage of the takeover’s impact aside from a few reports about isolated stores unionizing. If the union leaders are smart, they will leverage the company’s economic success–and the media coverage that comes with it–to inform the public and to advocate for their needs.
It is probably not yet time to venerate Elliott Management as saints or anything, but from a business perspective, the turnaround that they have facilitated at Barnes & Noble could be one of the top case studies in marketing textbooks for years to come.
Econ4All 