Has Barnes & Noble found its savior(s)?

Discussion
Photo: Getty Images
Jun 12, 2019
George Anderson

When the news broke last Friday that Barnes & Noble had agreed to be acquired by hedge fund Elliott Management for $475 million in cash plus the assumption of another $200 million+ in debt, it appeared as though the struggling bookstore retailer was set to begin the next — hopefully not last — chapter in its history.  

Now, however, another party has become part of the story. The book distributor, Readerlink, is seeking to raise financing to make its own bid for Barnes & Noble. Readerlink, which distributes books to retailers including Target and Walmart, was involved in the auction process for Barnes & Noble going back to October. It is planning to offer its own bid for the bookseller in advance of a deadline set for June 13, according to a Wall Street Journal report.

Elliott Management, which will receive up to $4 million if Barnes & Noble pulls out of the deal tomorrow ($17.5 million if after that date), is not new to book retailing. The hedge fund owns Waterstones, a U.K.-based chain with 293 locations. If it ultimately succeeds in acquiring Barnes & Noble, Elliott plans to have James Daunt, CEO of Waterstones, lead both businesses.

“Physical bookstores the world over face fearsome challenges from online and digital,” said Mr. Daunt in a press release issued last week. “We meet these with investment and with all the more confidence for being able to draw on the unrivalled bookselling skills of these two great companies. As a place in which to choose a book, and for the sheer pleasure of visiting, we know that a good bookstore has no equal.”

DISCUSSION QUESTIONS: Would Barnes & Noble under the ownership of either Elliott or Readerlink be more likely to succeed than under current management? What changes would you expect new management to make at Barnes & Noble?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"The retail graveyard is filled with well-known brands that have fallen victim to excessive debt loads and their own dated business practices."
"Waterstones is doing well at present (three years of profits) and holding up against the likes of Amazon and other online alternatives."
"I think there would be another Toys “R” Us debacle if B&N chose a fund over a book distributor."

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17 Comments on "Has Barnes & Noble found its savior(s)?"


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Bethany Allee
BrainTrust

Under the ownership of Readerlink, Barnes & Noble is integrated into the supply chain, thereby minimizing overhead and maximizing margin. In theory, this will be better for the bottom line. As an eternal optimist and bookstore lover, I am hopeful in the idea that Elliott wants to make Barnes & Noble a destination. Cultural hubs are the evolution/store-of-the-future, so they have the right vision.

If Readerlink acquires Barnes & Noble, I think the store will become more streamlined and mechanized. If Elliott acquires, I expect we will see Barnes & Noble transform into the destinations Daunt envisions. I’m excited to see either opportunity play out for Barnes & Noble.

Art Suriano
BrainTrust
I always get concerned when a private equity firm purchases a retailer. How many retailers did the “amazing” deal that was going to turn the company around only to find themselves going Chapter 7 a few years later because they couldn’t handle the debt and rather than save the company, the PE firm decides they can make more money liquidating and selling off the assets? Look at Toys “R” Us as just one of many examples. How much did the PE firm invest in Toys “R” Us vs. how much did they saddle them with debt that was next to impossible for them to pay. Barnes & Noble is a challenged business because of less demand for books. However, they still have an opportunity to be a successful business with the right blend of hardcover and paper books for the book enthusiast and technology for those who prefer the newest and latest opportunities for reading online. Music and Movies as well have become compromised because of streaming, but again B & N needs to find… Read more »
Jeff Sward
BrainTrust

It’s interesting that a hedge fund, any hedge fund, considers a book store a good investment in this day and age. Like any investment, it’s an “eye of the beholder” context. Current value versus perceived potential value. If Waterstones is providing all the right lessons, then that expertise may be highly leveragable in creating an evolved future for B&N.

Bethany Allee
BrainTrust

This is what I keep coming back to, Jeff. It’s a seemingly unlikely investment strategy for a hedge fund. Definitely will be interesting to watch it play out.

Peter Charness
BrainTrust

B&N’s savior would be the customer if they can sell goods and services that the customer wants to buy. Ownership (new or other) needs to figure that one out. Big Box bookstores are a tough game, although Indigo Books (until recent quarters) seemed to have figured out how to operate this format. I read books exclusively on a tablet, but if I could have the experience of wandering through a physical store for shopping titles, and pointing and clicking to buy, I’d be all in. Seems the right combination of browse in-store, buy in-store, deliver online, (without even a shipping delay) or see now, buy now just isn’t quite there.

Brandon Rael
BrainTrust
For Barnes & Noble to evolve and thrive under Elliott Management or Readerlink’s control, the company will have to significantly reimagine what their store and shopping experience could be. Regardless of which firm ultimately buys Barnes & Noble, the ubiquitous bookseller is in dire need of a reset and establishing their stores as a go-to destination. While either Elliot or Readerlink will offer Barnes & Noble the financial lifeline they need, it will only be a temporary solution, as the firm has struggled with their evolution over the past few years. The original big box book store disruptor has been disrupted not only by Amazon, and e-readers but also the changing customer preferences. The Barnes & Noble stores were a magical place to visit in the late ’90s and the turn of the new millennium, yet now is the time to drive new experiences, and have a far more curated assortment of books, that the local community would want to read. All of the proposed changes have to be centered around the customer. In the… Read more »
Carol Spieckerman
BrainTrust

Readerlink would seem to be the better play as the company understands the book business and the brand potential. On the other side, private equity ownership will be a far more distant and tactical play. Either way, you gotta love that the potential PE guy is called “Daunt.” Hopefully not a harbinger but perhaps apt!

Zel Bianco
BrainTrust

I believe Lenny Riggio when he says he believes the new owner and new CEO will have the best chance to make Barnes & Noble a huge success again. I worked at the ad agency that had his account for many years and he is a great guy and a true visionary. Given the realities of the book selling business, Lenny has been able to withstand and mostly thrive in a very tough business.

I don’t know if the new owners will be able to pull this off, but I do know that Lenny would not hand over the keys to just anyone, I believe he truly feels that Elliot Management has the best chance of success. I hope they succeed, as bookstores are great, and Barnes & Noble are among the best. Nothing will replace a good bookstore, and in fact, airports need more real bookstores, and not just another Hudson with small selections.

Phil Masiello
BrainTrust

I certainly believe B&N would be better served by someone in the book industry. We have already seen the effects of the PE consolidation of an industry. I think there would be another Toys “R” Us debacle if B&N chose a fund over a book distributor.

Cynthia Holcomb
BrainTrust

Libraries and good bookstores, a reader’s dream. Unfortunately, shopping Barnes & Noble is a lackluster experience. The presentation lacks inspiration, a hodgepodge of books, shelved in curious ways — as opposed to the dynamic real-world experience of shopping Amazon bookstores.

Whoever buys Barnes & Noble will need to reinvent Barnes & Noble, taking a cue from Amazon. Otherwise, it will still be the same lackluster experience, under new management. Ask a bibliophile, would you rather have more Amazon bookstores or Barnes & Noble bookstores.

Dave Bruno
BrainTrust

While I would normally be very suspicious that a hedge fund would be good for any business needing an infusion of capital to reinvent themselves in order to become relevant to consumers, I have to admit Elliot intrigues me. Their plans to install the Waterstones CEO is encouraging news, as Waterstones seems to have successfully integrated culture and community into their model. Readerlink feels much more like an efficiency and margin play, which will do nothing to solve B&N’s relevance problem.

Dick Seesel
BrainTrust

Like many other panelists, I’m concerned when I read “hedge fund” and “assumption of another $200 million+ in debt.” The retail graveyard is filled with well-known brands that have fallen victim to excessive debt loads and their own dated business practices.

Nor to suggest that a brick-and-mortar bookseller like B&N has no place in the world, but any number of turnaround strategies haven’t worked for years. Saddling a struggling retail model with more debt doesn’t sound like a recipe for success.

Ed Rosenbaum
BrainTrust

An interesting strategy is at play here when a hedge fund buys B&N. I am sure there is a strategy, but we will all have to wait and see. Sure, the bottom line will look better with the consolidation of operations. But how do they plan to get more people buying rather than browsing? I am a book lover and always enjoy going in and browsing through the favorites. I hope they have the solution.

Steve Dennis
BrainTrust

I’ll weigh in with a decisive “maybe.” The good news is their potential new owners have some synergy to bring to the table. That will be helpful but certainly not enough by itself. Barnes & Noble needs to do a better job executing against the blur that is retail today by delivering a more harmonious experience. They need to make their stores more memorable by providing new, unique, customer relevant experiences in store. They need to better leverage customer data to create a more personalized experience. And on and on.

The other issue is that their stores are generally way over-spaced for what they do today. Whether the answer will be to selectively add new related items to sell (a la Indigo) and/or add more theatre to the store is hard to say without more data. But unless they can grow their trade area penetration (in store and online) markedly much of their real estate will not make sense over the longer-term.

Cate Trotter
BrainTrust

I think everyone is thinking the same thing when they see “hedge fund” in the context of Barnes & Noble. However, Waterstones is doing well at present (three years of profits) and holding up against the likes of Amazon and other online alternatives. Whether that will remain the case is of course not guaranteed, but I do think the company has some good thinking (more events/reasons to visit the store, staff, differentiation between locations). So if they were to apply the same approach to Barnes & Noble you could be quietly optimistic about its chances.

At the same time, Readerlink would bring the brand closer to the supply chain which could benefit in other ways. I think this will be a case of two different approaches, but to have a chance of success they need to tap into what makes someone go to a bookstore and enhance that.

Ken Morris
BrainTrust

Readerlink appears to be a better fit for successfully turning around the Barnes & Noble brand. With bookselling experience and a vertically integrated distribution network, Readerlink may be better positioned to drive some costs out of the business or generate more cumulative revenue between the two companies.

Whoever becomes the new owner will have significant challenges. The book industry was forever changed by Amazon and has experienced significant casualties (e.g., Borders Group). Changes will need to address new shopping journeys and the experiences consumers now expect. Good luck to whoever “wins” this deal.

Craig Sundstrom
Guest

“What are they thinking?” is probably what most people are thinking about this. Suffice it to say Elliott is known for many things, but none of them particularly pointed toward this acquisition.

But whatever … I don’t think any of B&N’s problems were related to their management — indeed, that they’re still around while most of their competitors are not suggests management was good — and the challenges of operating in not one but two struggling environments (physical retail and books) will only grow.

wpDiscuz
Braintrust
"The retail graveyard is filled with well-known brands that have fallen victim to excessive debt loads and their own dated business practices."
"Waterstones is doing well at present (three years of profits) and holding up against the likes of Amazon and other online alternatives."
"I think there would be another Toys “R” Us debacle if B&N chose a fund over a book distributor."

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