I’ve discussed (arguably beat down on) Barnes & Noble many times in this column. But this is definitely the biggest news yet, even if you don’t notice anything different for a while: Barnes & Noble is being bought. So how will this affect the chain moving forward? Let’s discuss.
The company — as well as analysts and commentators — have brought up the idea of Barnes & Noble being bought for months, but now it’s finally happened. Chances are, though, that you haven’t ever heard of the new owners of the company: Elliott Management, an investment firm. This means that Barnes & Noble won’t be on the stock exchange anymore, although the news did wonders for its stock in a single day.
The sale won’t be final until about September with a pricetag of just under $700 million.
Elliott Management has its hands in a lot of businesses, of course, but one particular purchase from just over a year ago is of interest: Waterstones, a bookstore chain in the UK and other European countries. As you might expect, and according to this CNBC report, owning two similar chains could give Elliott “synergies and buying leverage with publishers”. Barnes & Noble and Waterstones will share the same CEO, James Daunt, a man who has lead Waterstones for years and has reportedly dramatically turned it around to a profit-making company. Of course, since it’s a private company, they don’t have to post financial information.
Elliott Management
So, having a new owner that already owns a similar business sounds like a pretty good match. It may not be the dream matchup that some people were hoping for (Amazon-Barnes & Noble), but that was unlikely.
But who is Elliott Management? According to their website, Elliott is one of the “oldest fund managers of its kind under continuous management” and now has assets worth $34 million. It has several different arms with their own focuses, but they are all a part of Elliott. Reports peg it as the “biggest activist hedge fund in the world” and one of the most profitable.
What is an activist fund though? You might be familiar with hedge funds, but in general terms, private equity firms focus on long-term investments while hedge funds are short term. But activists (either activist funds or activist investors) try to invest enough to take control or influence the way it is run. Elliott Management has been called a “hedge fund-turned-private equity shop”, a relatively new change in its decades-long strategies. Elliott Management also has been described by many as a vulture fund, a fund that targets or preys on companies.
There is plenty of research for you to make your own judgement on Elliott Management, but I’ll use their experience with the country of Argentina as an example. Elliott bought a bunch of cheap Argentinian bonds in 2003, just after the country went into a depression and defaulted on its debt. Elliott was one of the few investors that did not agree to take 30 cents on the dollar for its holdings, and although it had to fight for 15 years (including taking over a navy ship!), it made $2 billion on its bonds since they probably paid only 10 to 20 cents on the dollar for the face value of the securities. All from a sovereign nation that has had majority economic instability. Even if you blame Argentina for crafting the terms for their bonds in such a way that allowed Elliott to make 101% interest, check out what The New Yorker wrote about Elliott and its founder, Paul Singer:
“Elliott then pressures the company to make changes to its business, with the goal of improving the stock price. Elliott’s executives say that most of their investment campaigns proceed without significant conflict, but a noticeable number seem to end up mired in drama. A signature Elliott tactic is the release of a letter harshly criticizing the target company’s C.E.O., which is often followed by the executive’s resignation or the sale of the company.
[…]
“Activist investing is controversial: critics believe that it can force companies to lay off workers and curtail investment in new products in favor of schemes that boost short-term profits, while proponents view it as a useful source of pressure on C.E.O.s to reduce waste and manage their companies more effectively. In the press, Singer and similar investors have been compared to vultures, wolves, and hyenas. Bloomberg has called Singer ‘aggressive, tenacious and litigious to a fault,’ anointing him ‘The World’s Most Feared Investor.'”
From “Paul Singer: Doomsday Investor”, published August 27th, 2018
Waterstones
As I mentioned earlier, the CEO of Elliott’s first bookchain, James Daunt, is also going to lead Barnes & Noble after the previous CEO’s ouster. Daunt opened his own bookstore in 1990 at age 26 then turned it into a small chain before leading the much-larger (and troubled) Waterstones. Under his leadership, Waterstones’ profits rose 80%.
So what are some of the changes he made? Before Daunt took over, Waterstones had constant buy two, get a third free sales, which he ended. Daunt explained why due to his philosophy and experience at Daunt Books: “We don’t use price as a marketing tool.” In that same article, The Bookseller introduced Daunt Books like this: “With no discounting, no three-for-twos, barely any returns and staff earning approximately twice the going rate — Daunt Books is not your typical mini-chain.” That’s not to say Waterstones doesn’t have sales, but they’re limited. In addition, according to The New York Times, Daunt has said “Waterstones operates more like a constellation of independent stores than a homogeneous chain” with each store catered to its community.
So, Barnes & Noble appears to have a very capable leader. But will much of what has helped Waterstones be applicable to turning around Barnes & Noble? Compared to Waterstones, Barnes & Noble has:
- About 2.5 as many stores as Waterstones;
- Locations across the US, a much larger area than UK, Ireland, Brussels, and the Netherlands;
- Fierce competition from Amazon and Walmart, with both pushing towards 1 day delivery for online shoppers.
While they both may be bookstores, Barnes & Noble has its own unique circumstances.
I did browse Waterstones’ website out of curiosity. While it was nicer than Barnes & Noble’s, I checked about 10 books on their main page, and all of them were cheaper at Amazon UK, usually a pound sterling or more. Of course, Amazon UK doesn’t have signed copies right on the front page, so there’s that.
But if you’re reading this, you’re probably more interested in manga.
The manga front page was wholly unimpressive. Books from 2017 (Manga in Theory and Practice, Nisekoi volume 20) as “new and upcoming”? Really? We’re halfway through 2019 at this point, sheesh.
Even browsing their bestsellers featured some oddities. Listed was the first volume of the 3-in-1 omnibus version of Fullmetal Alchemist. Why not promote the new Fullmetal Edition instead? Five volumes of Tokyo Ghoul made it out of 15 in the list (6 if you count the sequel), 8 or 9 volume 1s depending on how you count, but One-Punch Man‘s one contribution is volume 12? What, did Brits not bother with it until the series reached double digits or something?
Oh, and as you might have gathered from before, no sales, but at least the first two Black Editions of Death Note were cheaper than Amazon UK (£7.99 vs £8.55). All the other volumes I checked were cheaper at Amazon UK.
Another thing to consider: Waterstones offers free delivery on orders £20 or more. Amazon UK has the same deal…but if you only want books, then you only need £10 for free shipping.
Final Thoughts
While CEO Daunt has appeared to help Waterstones, Elliott Management has only owned them for a year. Now that Barnes & Noble is going to be under their belt, who knows what kind of pressure they’ll apply to one or both. Waterstones was already rising when Elliott acquired them; Barnes & Noble was not.
But financially, considering Elliott has outdone the S&P, things are looking good for the future of America’s largest bookstore chain. They shouldn’t be crumbling anytime soon.
However, they may not remain the same Barnes & Noble as we know now. Barnes & Noble already does cater to its community to some extent like Waterstones does, but perhaps future stores will look more like this new prototype than the current standard store. Service and experience over price.
But if you were disappointed this month to see a Yen Press 3-for-4 sale instead of the more common 3-for-2, buckle up — those discounts may soon be coming to an end. Considering the US is a country that tends to thrive on sales, I don’t know if a well-trained staff and a localized store is enough to get people to stop by. Remember the disaster JCPenney had when they switched to no coupons and sales? It still affects them today. Barnes & Noble has already cut back over the years. I miss the 40% off coupons — heck, even getting a 25% coupon is now super rare.
Me, it’s pretty much you do no sales/coupons = me no come. Particularly in areas that are less affluent, I really wonder if a no deals Barnes & Noble — which is a good possibility considering Daunt’s past — working out.