Waterstones back in the black after five years

Waterstones has reported a profit for the first time under the ownership of Russian businessman Alexander Mamut and direction of its m.d. James Daunt.

Boosted by “better standards of bookselling”, the 270-store chain saw sales rise by 4% to £409.1m in the year to 30th April 2016, helping it achieve an operating profit of £18.8m, resulting in a pretax profit of £9.9m, after finance costs, compared to a pretax loss of £4.5m a year earlier.

Waterstones’ m.d James Daunt told The Bookseller that the company benefitted from a slow down in the growth of e-book sales and enticed customers back to its high street shops my making them “better, different, nicer” environments to be in. He stressed the importance of the booksellers. “Everything relies on bookselling and offering a better service around bookselling,” Daunt said. “People come into our shops for the knowledge and the service, the success of The Essex Serpent (Waterstones’ 2016 Book of the Year by Sarah Perry, Serpent’s Tail), shows you that. Our support meant a book which would otherwise have achieved modest sales became a bestseller in the most competitive month of December. That is all about the service from bookselling. It is not about posters on the underground, but individual recommendations.”

It is the first time Waterstones has been in the black since the chain was bought by Mamut for £53m from previous owner the HMV Group in 2011, when Daunt Books owner James Daunt took up the helm as managing director. In that time, stores have benefited from capital investment, unprofitable ones have been closed and new ones opened. In the grip of the digital revolution and threat of competition from e-books, HMV planograms prescribing how each bookshop should be laid out were ripped up and paid-for promotions in shop windows were dropped. Instead the company bet on empowering its booksellers to hand-sell titles, increasing its range and bringing staff out on to the shop floor – although costs were tightly managed and overall employees reduced significantly since 2011, along with a swathe of 200 managers let go in 2013.

The latest set of accounts show the stores were also boosted by £9m investment pumped into infrastructure to create better bookshop environments.“This investment, combined with better standards of bookselling within the shops to improve service and the range of books stocked, is once again making Waterstones, for those who love books, a place to visit and spend time in,” the company said.

The results also reflected a £2m investment in the hub to increase its capacity for next day delivery of titles from 3,000 to 20,000.

Higher sales of non-book products also helped the chain, now accounting for 12% of the company’s turnover. But while Waterstones plans to grow this to 15% over the next three years, the company will always revolve around sales of books, Daunt said. “We are still absolutely 80% a seller of books. I think non-book product simply makes bookshops better. People want the option of buying a children’s toy or stationery as well as books,” he said.

A more “benign” bookselling competitive environment has also helped the chain, Daunt said, with each retailer “finding its own place”.

“Amazon is our only real competitor,” he said. “WH Smith does its own thing, independent bookshops do their own thing, just as we do our own thing. I think our business is less bestseller-lead, unless we create one. It is more driven by a deep range of solid, decent books. The Fox and The Star (by Coralie Bick-Ford Smith, Waterstones Book of the Year 2015), Julian Barnes, these all drive sales but do not fight with the bestsellers. It is very much about range.”

Daunt said the company was not missing sales from its direct e-books store, after closing it in May last year to direct customers to Kobo’s. “E-books are a duopoly market and we never really competed in it,” he said. “It is a big boys game.”

Now the company has made a profit, the next three year plan is to “grow top line sales and generate more profit,” Daunt said. “We need to sustain the minimum wage increases and business rate impact,” he added.

However, Daunt also said he would like to invest more in staff in terms of training and pay. “Certainly we need to give booksellers a pay rise,” he said. “It is a virtuous circle, if you invest in staff, they want to stay with the company and worker harder, then the company does better. So we certainly want to be investing in them more going forward.”

The company opened seven shops in the year the accounts refer to but closed six, so a net increase of one shops has left its overall size of the estate at 270 shops. In 2017, the company plans to open more stores, he said. Waterstones has also increased its number of own-brand Café Ws in the year to 46.