How Barnes & Noble rose from the dead (and what entrepreneurs can learn)

Back in 2011, the number 2 bookstore chain in the United States was called Borders, and they very quickly declared bankruptcy and suddenly closed 600 stores across the US. And if you look at it, like, kind of made sense at the time. Everybody thought that bookstores were dead and this was the first domino to fall. And with Borders out of the way, that left only one large chain standing, Barnes Noble. And look, it looked at the time like Barnes Noble was going to reach the same fate as Borders. They were going to die as well. And starting with 700 stores back in 2010 until 2019, like their business absolutely cratered. They closed 150 stores and things didn't look good. And investors, well, they tended to think the same thing about Barnes Noble at the time as well. The stock went down by over 80% from its peak and looked like the end was coming. But then something strange happened. The company went private, was bought in 2019, and today things have totally turned around. And in 2024, the company is doing something kind of miraculous. Despite book sales declining nationally, they're opening 30 new stores. So how did a company that, well, was about to go out of business just 5 years ago and written off for dead execute just a remarkable turnaround like this? Like, What caused it to happen? How did we get here? And then two more things in this video. What can we learn from the turnaround of Barnes Noble? And lastly, maybe some insights for you at the end of the video, how a lot of what you're reading in the news about Barnes Noble, well, it just isn't all what it seems. So stay tuned. If you're new here, my name is Michael Girdley. My hobby is to study business and talk about business. I love it. Other people have more fulfilling things they do, like race cars or ride horses or I don't know, garden. Me, I like to talk about business and it's just fun. So I run this YouTube channel and video channel about that type of stuff. I study what's happening in business and then I make videos about it. So other people who are entrepreneurs like myself can learn from it and put it into practice. So if you like that kind of stuff, give me a follow, stick around. So to understand the turnaround of Barnes Noble, we have to go back to basically the 1990s. At that point, they had pioneered the concept of this book superstore trend. Much like Walmart had come into individual cities and decimated independent and small retailers in all the categories it was in, the folks at Barnes Noble had done that for books. They were the undisputed king of bookselling. They had pioneered the idea of cafes inside of their stores and pioneered the idea of huge selection at reasonable or discount prices and done that in a way that basically, well, other chains chains and independent booksellers, they just couldn't compete. And the business model for Barnes Noble was pretty simple, right? You build these huge stores, you compete on selection, and then you compete somewhere else, which is when you get to be big enough as a chain like that, suddenly you have pricing power over publishers and authors to where you can get better prices than, say, the independent booksellers can get. And combine this idea of a huge amount of selection to where if you wanted a book, they were going to have it at Barnes Noble. And secondarily, they could buy books cheaper than you could, and also they could demand to get paid by publishers to promote their books. That proved to be just a winning formula, and by the early 2000s, they controlled 30% of the United States book market. One thing you'll learn from these stories I talk about in business, not all good things last forever in business. The only constant is change. And along came something to disrupt kind of the fairy tale situation for Barnes Noble, which was our our good friend Amazon. And if you were alive back then, which man, 27 years ago is a long time ago, I was around, you'll remember that Amazon actually got started as an online bookseller. They came in and they did to Barnes Noble basically what Barnes Noble did to all the little bookstores. They offered a giant selection, easy convenience, and it was easy to just go online and go to Amazon and say, "I need the book," and the next couple days it would show up in the mail. Much better than going to Barnes Noble and scratch around hoping they had a title that you wanted. Interestingly enough, Barnes Noble actually had a chance to buy Amazon back in 1997, the year I graduated from college, for just $12 million. And much like Blockbuster passed on buying Netflix, the Barnes Noble folks passed on buying Amazon. And that was a decision that would, well, come to haunt the chain for kind of the rest of its existence. Amazon, if nothing else, they're formidable. By 2007, Amazon was selling 6% of all books sold in the United States. By 2019, that number was close to 50%. They had come out of nowhere and basically ended the dream and long run that Barnes Noble had gone through for decades. But as I'll show you a lot on this channel, the thing that kills businesses isn't usually one thing. It's usually multiple things that were once tailwinds turn into headwinds. And the second one that came after the Barnes Noble chain was clearly the rise of the e-reader. And Amazon launched that in 2007 to great fanfare. And if having a giant bookstore where you could click a button, in the case of Amazon, and the book shows up in your mailbox in the next couple days was beautiful, imagine if an e-reader shows up and then you can click a button and the book instantly shows up in your pocket and you can read it at that moment. And when Amazon launched theirs in 2007, Barnes Noble was just slow to respond. It took them until 2009 to bring out their own offering, the Nook, which by then, 2 years late in technology terms, they were too late. Well, look, by the early 2000s, most big corporations had learned about the danger of being disrupted by technology innovations like the Kindle. And so Barnes Noble and the leadership there, they did what most management would do in that situation, which was they kept fighting and they kept investing to try to retain market share and keep from losing it. And they invested over $1.4 billion to try to make the Nook a thing between 2010 and 2019. Just an astronomical sum for a retailer at the size of, well, Barnes Noble. That kind of cash outlay, the business was, well, already behind the 8-ball. Like, where— how are you going to survive when you're spending that kind of money trying to keep a failing business, in the case of the Nook, alive and going? And look, that translated into the third and biggest problem that I think Barnes Noble had over that time, which was just revolving door of leadership. They had different CEOs coming in all the time and weren't able to give a consistent level of vision and direction to the company. Between 2010 and 2019, Barnes Noble had 4 different CEOs. And here's the thing, the way things work when you bring in a new CEO to a business like this, invariably all the stuff their predecessor was doing was terrible. And because the new CEO wants to leave their mark on the business, they universally will come up with new ideas and new things to do. And when you have a big business the size of Barnes Noble that's challenged, that kind of leadership, you know, whipsawing and changing of things over and over again, it can be hugely damaging to the enterprise value of the business. And ultimately, you can end up with a business that just gets tired of having to change so much as new CEOs bring in new ideas like cafes and membership services and bringing in toys and all kinds of stuff that fundamentally just wasn't making and moving the needle for the company. So by 2019, those three headwinds together left a chain really without much coherency and much idea of what it was really supposed to be. I remember going into the stores back then. I actually have a tweet from when I went in where I walked in, I was like, man, more than half the stuff at this Barnes Noble isn't actually books. Like, the world's largest bookseller was selling toys and gift cards and crap that just shouldn't be there. Instead of being the master of selling books and doing that really well, they had turned into a company that was basically like selling everything poorly. Uh, and so by 2018, like, the situation was pretty dire. The stock had dropped from $5 a share, or all the way down to $5 a share, basically pretty close to being delisted. Debt was mounting, the company was losing money. Uh, when I looked at the last couple quarters they were public, they were losing $60-100 million a year, just hemorrhaging cash in a way that wasn't working. And, uh, it was a mess, and everybody had written them off. Look, it was easy to think that at the time Barnes Noble was dead, right? Like, eBooks had won, Amazon had won. You know, it was just over. You know, the whole idea of retail being a place you go get books, like, it was easy to see in your mind how, like, that was a failure. So the company and the board, kind of lacking options and having done their best at this point, they put the company up for sale. And there were a few buyers, but one company, one private equity firm stepped up, and it's a firm called Elliott Capital Management. Elliott, and they specialize in turnarounds of distressed companies. And they stepped up and they bought the chain and they took it private. And this is where things start to turn in terms of fortune for the company. And after Elliott bought the company for about $660 million in debt and cash, they went out and they found a new CEO. And one of the things they did was incredibly smart. They went and found somebody who had done what they needed to be done before. They found a man named James Daunt. Who is a UK-based CEO, and they enlisted him to go out and do what he had done before, which was turn around a chain of bookstores called Waterstones in the UK. They wanted him to do the same thing but for Barnes Noble. Don had a really interesting idea about how to turn around the chain. What he did was, and what he wanted to do was, come in and basically reverse a lot of what had worked for Barnes Noble in the past. As I talked about, like, the chain succeeded because it was so big. You knew you could go into a Barnes Noble anywhere, find the books that you wanted, find the kind of look and feel that you would get. It felt very corporate, very uniform. And Daunt, well, he wanted to throw all of that out the window and make the stores of Barnes Noble, well, act more like individual independent bookstores. And he had a radical idea that instead of acting like a McDonald's where everyone's the same, each of the bookstores should reflect the personality of the individual managers and the staff working there, and that should reflect the community and the people who worked in the store. Because ultimately Obviously, if you have a Barnes Noble in a, you know, let's say a college town, that's going to be very different, say, than here in my town in San Antonio, which has radically different interests than a bunch of college professors do. In fact, I'm not really sure what our interests are, but I'm sure they're great. After giving all the store managers really autonomy over what should happen in their stores and let them act more like entrepreneurs, the second thing he did was return the chain to its roots. And I talked before about how, as of 2019, the stores were just selling a lot of stuff that wasn't books. And you saw things like toys and Hallmark cards and all this stuff, it made the stores feel cluttered. Like, how are you going to find a great book for you if you're having to wade through Hasbro toys, Legos, and board games? Like, just doesn't make any sense. And ultimately, the product of getting rid of all this stuff that just wasn't books, it, it changed the look and feel of the stores entirely. It made them all about being a mecca for books. And you could go into the bookstores by the end of 2020 and they felt just like they should— a place that really, really does books well. And I'll put up my tweet here that I did back in 2019, uh, where I went into Barnes Noble and the place was such a mess, uh, that I went and felt so bad for them that I bought just a random book for $35, uh, because I wanted them not to go out of business. And growing up, like, being a nerdy kid before the internet, like, I loved books. Like, I read books all the time. And going to Barnes Noble was just something I would go do on a Saturday night or a Friday night. It was just a magical place where for, you know, $20 or even less, you could go buy a book that would potentially change your life. And to me, my love of books at the time made me so sad to go into Barnes Noble and see that it had become this huge mess. Kind of crazy. And in changing the way decisions were made at the company to where the store managers became a lot more entrepreneurial, it radically changed the culture of the company. The idea being that now the store managers had the autonomy to make changes to their stores. They could design signs the way they wanted to have them. They could design different events tailored to their local community. And most importantly, they could bring in books that they and their staffs loved. And rather than being forced by corporate to carry certain books and promote those, they would, well, basically take ownership of that at a local level. And to me, if you're a customer coming in, like the reason I go to a bookstore like this, like Barnes Noble, is I want to be part of a community of folks and I want to be, Hearing from those folks, how I can pick the best book for me, because out of the millions of books published, like, man, like, I don't wanna waste my time on a bad book. So by changing this aspect of Barnes Noble, like, it radically changed the relationships with all of the chain's customers. Kind of gorgeous. Look, decentralizing this stuff was not without risk. For those of you that don't know, the way a lot of retailers work is they go and charge their vendors to do what are called placement fees. It's basically in-store advertising where they make their vendors pay them to give premium slots to certain items. And if a publisher wanted to promote a certain item, say Michelle Obama's new book, like Barnes Noble, who was so big at the time, would go to them and say, you have to pay us. But by decentralizing the decision-making, basically they had to give up that entire revenue stream. I wouldn't want to be at that board meeting when you have to go in and explain why we're getting rid of a high-margin solid set revenue for us when they got rid of these placement fees. But look, ultimately these changes, the decentralization, the getting rid of the placement fees, the emphasis on customer experience and the focus on books, like suddenly the genius of what's happened with Barnes Noble is they've created something that can't be replicated online. And if you've gone online recently and tried to read through Amazon reviews or any of the stuff they have there, or even Amazon site Goodreads to try to figure out what books you should buy, like good freaking luck. It's a disaster. And suddenly this desire that humans have to have somebody recommend great books to them and maximize their time and potentially be able to bond over those books, suddenly Barnes Noble has gotten into an entirely different business than it was before. Our favorite thing that has changed society forever, the COVID pandemic in early 2020, and most people at the time expected this to be the thing that finally killed all the bookstores, uh, and they would never come back again, but what it did was exactly the opposite. It turns out that COVID has changed how we all behave and how we look and act about in our life. And instead of killing the idea of reading, suddenly people who were forced to stay at home for long periods of time and not socialize during the COVID pandemic, they started to read a lot more. And book sales, well, they actually skyrocketed during the pandemic. Stores reopened post-pandemic. Well, guess what book chain was suddenly prepared to totally capitalize on the change in consumer behavior? Barnes Noble. And all the other chains— Borders, who I mentioned at the beginning of this video— like, they were gone. And, uh, if you want to go to a live bookstore and commune with others over books and go to an event around books, like, there's only one game in town. It's Barnes Noble. And secondly, Barnes Noble has gotten incredibly lucky. Uh, there's been a thing that's come because of the rise of TikTok. TikTok is a short-form video site which does a lot of single-person videos, right, where people are talking about their likes and their feelings about stuff. Well, uh, there's a whole corner of TikTok that's emerged called BookTok, uh, where people are basically talking about the books they like, sharing them, and creating content to recommend books to others. And, uh, that has turned into a huge tailwind as well for Barnes Noble, because remember, you know, I talked to you about how Amazon and others, like, they do not help you with finding good books to read for you. And every time I talk about what books are good and what books I recommend on social media, like, the demand for that kind of content is like enormous. Like, everybody's hungry for it and happy for it. And BookTok has turned into a place where people are discovering books and the types of books they want to read. And a lot of times, because of that consumption, they're going straight to Barnes Noble to buy them. So one thing that's interesting when you look at this is what types of books are getting recommended on BookTok and who's recommending them. There are a lot of women recommending them, and there is a huge rise in books that basically are versions of Fifty Shades of Grey. If you remember Fifty Shades of Grey, it's pretty raunchy, right? And if you go look at what books are selling really well right now in the nonfiction or in the fiction category, it's a lot of stuff that's pushing the limits of kind of— well, there's some bad words used in there. And look, with a lot of things that are kind of adult-oriented content or adult-oriented items, a lot of people don't like to buy that stuff stuff online. They want to go buy it in a store and then be able to put it into a place where it's not as obvious what you're buying. And that trend between TikTok and this rise of kind of the amorous level of literature that Gen Z and young folks are consuming like crazy, well, that's another huge tailwind for Barnes Noble that, well, they just kind of lucked into. So by 2022, something miraculous happened. Despite it being left for dead, Basically, the Barnes Noble chain was something that opened more stores in 2022 than it closed. And the chain has started to grow again because of these changes. But here there's kind of a problem with all of this narrative, which sounds great, but we really don't know how much of it is true because the company is private. Remember when Elliott bought the company, they took it private, which means we don't see a lot of the things you normally see in big public companies. We don't have that level of public disclosure, so we don't really know what's going on. Beyond that. But at least according to what the company is saying, it's growing and it's profitable, which is kind of a miracle. What can we learn from the story of Barnes Noble? I think number one is if you're looking for somebody to do a job for you, whether it's a CEO or somebody else, there's an amazing hack to hire somebody who's done it before and succeeded at it before. And in the case of Barnes Noble, right, they went through 4 different CEOs over the course of a 10-year period before they finally hired Dawn. And what was the difference? Well, Daunt was somebody that had done it before. This reflects my experience too. Like, I'm on the board of a company in turnaround mode right now, and when we went to go find a new CEO for the business, the first thing I told the recruiters was, go find me somebody that's done this before. Like, I want a proven athlete who's done this thing in practice. I don't want somebody who's going to be figuring out for the first time. And again, just like a huge lesson when you're building a business or trying to get a job done inside of your company, like, you don't want to go hire a general contractor and have them build your house if it's the very first house they're going to build. Not a good, not a good sign. So lesson number 2, when I researched this article, one thing I noticed was, uh, well, when I researched this video, one thing I noticed was like the talking points and the things that were showing up in all the articles and the language that people were using, like it was all very consistent, like very, very consistent, which led me to believe there's some stuff going on, most notably there is definitely a PR campaign happening around Barnes Noble where they're trying to make the company look good at this point. And I think that's the lesson from all this. Like with any information you get, whether you're a leader or you're somebody that's reading the news, like you got to read it with a critical eye because by and large, like there's a lot of stuff being told you to try to manipulate you and your opinion. And in this case, like it's a huge red flag that there is just a bunch of talking points being repeated by every single media operation. Which to me indicates there is a sophisticated and high-level PR stuff going on to plant these stories about the redemption of Barnes Noble. That means a lot of the stories have left out kind of some of the important things about the turnaround. One of the things you'll read if you go kind of Google commentary online about Barnes Noble is how much employees are complaining about being understaffed and underpaid. And then secondarily, like not included in a lot of the discussion is like what they're doing with regards to creating recurring revenue and with membership fees and discount programs and all that kind of stuff. Like, interesting that none of that showed up in a single one of the articles, but that kind of revenue, as we've seen from businesses like Costco, membership fees can be an amazing ability for— well, amazing way for companies to make even more money. So anyway, just something to look at here with this business is, man, There's a lot more to the story that we don't know, and reporters often do a good job of missing it. Lesson number 3. Look, when a business is struggling, it's really tempting to go look for greener grass elsewhere. And you saw that with all these CEOs of Barnes Noble. They saw the book market itself shrinking, and rather than leaning in and trying to do that better, they got into other markets. They started selling Hallmark cards and toys and board games and just crap. Like, and I think it's really tempting when a business is struggling or needs to turn around to basically look for miracle solutions where the grass is greener. And the reality is the grass is not greener. Business is hard no matter where you are. And your job as a CEO is many times just to do your core business really, really well rather than try to go find some new miracle solution or expand into a new line of business. And that was a trap that definitely the CEOs of Barnes Noble got into until Mr. Daunt showed up. So where do we go from here? Look, The reality is that the book market is still shrinking. Last year in 2024, the total number of sales of books and dollars spent shrunk by about 2%. Barnes Noble shrunk at about that level too. Notice they don't talk about that in the articles. This is still a business that is growing into a headwind of a shrinking market. That's always a red flag. But the reality is, like all these articles and the PR stuff that we're seeing in the news, that's not just happening. Like, if you see universal talking points and somebody spending a bunch of money on a PR campaign, uh, it's because they are getting ready to do something later on, and they're playing the long game there. And what's clearly happening here is Elliott is setting up the company to go public again, uh, and telling a good story and laying the foundation so investors like you and me might buy their stock, uh, when they go public again, and Elliott can get their payday. Kind of genius. Good news is when they do go public, there's a lot of regulations around that. They will be required to publish the financials and details around the business, and, uh, that'll be good for you and me, especially if you want to buy the stock. So, okay, well, that's it for this about Barnes Noble. What do you think? Let me know what I got wrong in the replies below. Thanks.