How a new attitude to work saved Britain’s bookshops

James Daunt took on Waterstones when it was an ailing high-street chain and turned it, within seven years, into a profit-making operation.

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Most people are not fully aware of how close Britain came, in the autumn of 2011, to losing its bookshops. After fixed prices for books were abolished in the mid-’90s more than 500 independent stores closed, unable to compete with the discounts offered by supermarkets and internet retailers. Long-established chains such as Dillons and Ottakar’s foundered and were subsumed. In January 2011 Waterstones, the only remaining chain devoted exclusively to bookselling, closed two bookshops. The following month, it closed nine more. Waterstones teetered on the brink of administration.

“At which point,” says James Daunt, “it would have disappeared, as Borders did. A closing-down sale of ten days, and then 280 bookshops disappear. It would have been catastrophic for physical bookshops. I remember when there weren’t bookshops,” he says of the days before big chains made bookselling a mainstay of the high street. “It would have been very depressing. These great metropolitan bookshops… once you lose those sites, they never come back.”

Daunt describes what followed as “a miracle”. The Russian billionaire Alexander Mamut “very correctly observed that Fernando Torres cost more than Waterstones”, he laughs, adding that for Mamut, “there was a lot more benefit investing in Waterstones than in Fernando Torres”. Daunt, who had founded what he calls a “tiddly” six-shop chain, Daunt Books, was appointed as the Waterstones’ new managing director.

A second miracle would be needed, however, for what was to come next. “We underestimated the scale of the difficulty,” Daunt explains, and when he says “difficulty”, he means Amazon. In 2012, Amazon launched a redesigned version of its Kindle e-reader, called the Paperwhite. Waterstones even helped to promote the device, launching it from its stores. “At that point,” Daunt remembers, “the most pessimistic publisher was Gail Rebuck at Random House. She was way out on a limb, saying that ebooks might go up to as much as nine per cent. Two years later, they were at 25 per cent. We lost £100m in sales.”

The memory is clearly not a pleasant one for Daunt, who describes the measures he took to cut costs at that time as “brutal”. “There is simply no fig leaf you can put on cutting costs; it’s sacking people. We dropped the number of people we employed by 25 per cent, very, very quickly.” But the lowest point in Waterstones’ history was also the point at which Daunt became free to rebuild the business. With a reduced workforce that was significantly less top-heavy (“half our managers left,”) he began to reinvent the way Waterstones worked.

The thinking behind Daunt’s plan was simple, and seems at first glance so obvious that it could almost be taken as a platitude. “The only thing that could save us,” he says, “was if we had better bookshops.”

Every cost-cut during this time was measured against this idea. Daunt says assessing decisions in this way was “tricky… because you’re often saying things like, ‘well, how does having three booksellers rather than five make it a better bookshop?’ To which I would say, well, you have to run around like a blue-arsed fly if there’s only three of you, and that brings energy and pace. Also, you drive out the useless things that customers don’t value.”

It was in going through this process that Daunt discovered the change that would make perhaps the single greatest difference to Waterstones’ future. When he refers to “useless things”, Daunt is really talking about one thing: returns.

Returns are unsold books. Roughly one in four of the books printed and delivered to bookshops sit on the shelves for a few months before being repacked into boxes and sent back to their publishers. “WHSmith still operates at around that level,” explains Daunt. “So does Barnes and Noble, so does every chain bookshop in the world. But if you don’t take those books in, you don’t have to process them, shelve them, pick them and send them back out. Roughly half of your work is removed.”

The problem was that Waterstones, like other chains, bought its books centrally. Deals would be made with publishers – “effectively driven by the amount of money that publishers would pay you to take a book,” says Daunt – and every branch would be loaded up with the same titles. To create better bookshops, Daunt realised that he had to stop allowing publishers to buy space in them. “We said no, we won’t be paid a penny, which we’re not, now.” It was not, however, a penny that Waterstones was being paid by the publishers; some estimates put the figure at £27m per year.

It was a considerable sum, but for Daunt it bought something more valuable: autonomy. From his experience of running an independent bookseller, Daunt knew that independents do well because they only buy the books they think they can sell. “At Daunt Books, we ordered our own books. And because it’s your own money, if you’ve bought hundreds of copies of books that you can’t sell, it takes money out of your bank account.

“If you’re sitting centrally and you send out the same books to Middlesbrough as to Hampstead, you’re going to have an awful lot of books in the wrong shops. If you let Middlesbrough order what they want and Hampstead order what they want, they will be dramatically more accurate and nuanced. “What’s more, says Daunt, “they have the responsibility for selling the books. So if they’ve ordered in ten copies of your new biography, they put it front and centre and they sell the thing.” Each branch of Waterstones was now, to some extent, an independent bookshop.

It was not easy for Daunt to persuade his centralised management to relinquish control over what was sold in their shops. “To marketeers, it’s a heresy to let every bookshop do absolutely whatever it likes.” To illustrate the difference it makes giving autonomy to booksellers, Daunt opens his tablet and finds a recent email from a publisher whose daughter recently started working at Waterstones. The young woman is sat at her kitchen table, hours before she is due to begin work, hand-painting pieces for a window display. “A chain retail marketeer would have blue-eyed fit about that,” chuckles Daunt. “If Boots allowed staff to sit at their breakfast tables, painting things...! But in a bookshop, that would make the shop more fun, more vibrant. And clearly the bookseller is invested in selling that book. They are only selling that book because they love it.

“But, and it is quite a big but, there is accountability. You can do whatever you like, but it’s got to be friendly, positive, and it’s got to work. If you start doing pretentious, convoluted, awful, ugly, we’ll knock on the door.” When employees were simply told what to do, says Daunt, their working lives were both easier and less interesting. Now, his booksellers are forced to ask themselves “what am I supposed to do?”. The answer, he says, is “Whatever you like – but it’s got to work.”

This means training staff is also both more difficult and more interesting. “In the old days, there would be very much a template of what a good bookseller was,” he says, but point out that Waterstones shops are hugely varied. “We’re in shopping centres, metropolitan cities, the smallest villages, the high streets of Middle England. What you need in each of those is bespoke to that shop.”

Daunt says Waterstones has had to “break a culture” of mass training initiatives that he describes as “the most counterproductive, dispiriting, inane, generic things”, and to replace them with “very specific, modular training for the individual skills we think each of our booksellers need. We’ve invested initially in training the trainers, making sure that the person who trains in children’s books or history knows what they’re talking about, and really loves that bit.”

This cultural shift had to take place, however, to allow a high-street chain to do what Daunt describes as “very unusual things; I can’t think of any other retailer where the pricing of what’s in the shops is left entirely to the individuals in them. A book doesn’t cost the same everywhere in Waterstones. The discount varies by shop, and it’s entirely at the discretion of the booksellers. I don’t think that in Boots they say ‘price the Timotei any which way you like’.”

Often, giving booksellers autonomy to run their shops as they please delivers unexpected results. “The one my colleagues struggle with most is those shops that you go into which are, on any empirical examination, awful. They’ve got the wrong books on the table, the wrong juxtapositions, they’ve put plastic flowers in the middle of a table. It’s just all awful… and yet the shop’s brilliant. It has energy. There’s a mad bookseller in there who’s got no visual sense at all, but the whole place is infused with energy. It’s full of customers, and everyone’s enjoying it. A chain finds that very difficult, because it’s a mess. There’s stuff falling down in the window. But it has that very difficult alchemy of what makes a shop work. What we do much better now is to say ‘we don’t understand why this shop works, but it does, so let’s leave it alone.’”

Daunt is, for the head of a retail organisation, exceptionally frank about pay and progression. Three times during our interview he affirms that the basic pay on the shop floor is “awful”. Again, autonomy and accountability are the solution, because they increase both job satisfaction and productivity. While he acknowledges that low by-the-hour pay is a fact of life in modern retail, he plans to move longer-term, dedicated, creative Waterstones staff to salaries – and in return, to make them more accountable.

He also acknowledges that part of this more intelligent approach to retail involves managing good people out of the business. “A part of my workforce is not with me for very long. If I take some very bright, ambitious kid just out of university, they may just be with me for two or three years. And that’s the deal we’re doing, because they want to be, say, a journalist. So we look at individuals who need to go on and out, and how we help them do that. One of the things I want to be judged on, in ten years’ time, is what the alumni are up to. How we developed them, and what they went on to do. Certainly at Daunt Books, we’ve had some astonishingly capable people through, and I hope that we gave them years of real development before they went on and conquered the world.”

For now, however, there are two numbers upon which this skills-based approach can be judged. It’s possible that Daunt, as a bookseller, takes the most satisfaction from his rate of returns: 97 per cent of the books on shelves in every Waterstones in the country are bought by customers. His employer is probably more interested in operating profit, however, which reappeared for the business last year for the first time in seven years. For many businesses, skills such as self-determination and freedom of expression are woolly concepts, unrelated to the bottom line. At Waterstones, they are worth tens of millions per year.

Will Dunn edits the New Statesman's regular policy supplement, Spotlight.