What's in store for Waterstone's?
The fate of struggling music group HMV and its Waterstone's book chain has been of more than just passing interest to investors. The decline of HMV, which came perilously close to administration in recent months, is a story of our times.
No other British retailer has been more affected by the digital revolution. HMV has been around for 90 years but the combination of Amazon, which has undermined the business model of all booksellers, and the digital download, which has cannibalised sales of CDs, records and books via Kindle and the like, destroyed HMV's business almost overnight.
The group's rescue plan as executed by chief executive Simon Fox has been three-pronged. The first was to sell off the Waterstone's arm to Russian oligarch Alexander Mamut for £53 million. The second was to negotiate a new £200 million two-year loan deal with HMV's banks, Lloyds and Royal Bank of Scotland. This, Fox hopes, gives him the breathing space to concentrate on the increasing market for live performances through festivals and venues like the Apollo in Hammersmith, West London. He also wants to change the mix in the HMV stores with more paraphernalia such as headphones for the digital age.
As a book chain in difficulty Waterston's is not alone. Borders went into administration in the UK more than a year ago and independent booksellers are in danger of becoming a thing of the past. And in the United States, the Barnes & Noble chain was recently bid for by Liberty Media for $1 billion.
The sale of Waterstone's by Fox to Mamut was surprising. One doesn't necessarily think of a book chain being the first choice of Russian tycoons - most seem to have made their fortunes in oil and natural resources and then tended to invest the proceeds in high-profile assets overseas such as football clubs. But Mamut, who like the other Russian billionaires became rich during the Yeltsin era, likes to present himself as cut from a different cloth. Aged 51, he has been labelled by the Daily Telegraph as 'probably the most powerful oligarch you have never heard of.' Mamut is currently thought to be worth around £1 billion and counts Russian prime minister Vladimir Putin and the Chelsea FC owner Roman Abramovich among his friends. Mamut trained as a lawyer but is known as a businessman and a banker. Among his media interests are the San Francisco-based social networking site LiveJournal and the Russian publisher Azbooka-Atticus. He says he enjoys reading high-quality literature in Russian and English. Unlike his old friend Abramovich and newspaper proprietor Alexander Lebedev, the new owner of Waterstone's seems less interested in trophy assets.
Mamut, who lives in West London, is very much an unknown quantity in the bookselling industry. He is described in profiles as being of Jewish heritage so perhaps we should not be too surprised by his interest. Jews have long been known as 'the people of the book' and certainly in the US all the polls show that Jews are among the most prolific book buyers.
His choice of the popular book store owner James Daunt as his first managing director has elicited strong approval in the industry. Daunt, a Cambridge-educated former banker, founded his own bookshop on Marylebone High Street in 1990. He has since opened a further five. His stores had a turnover of £10 million last year. This is something of an achievement in an industry under so much pressure from rivals: supermarkets J Sainsbury was named bookseller of the year this Spring, plus there is the Kindle, iPad and other electronic devices. But running a small, specialist chain of bookstores in carefully selected neighbourhoods, as Daunt has done, is a very different proposition.
Mamut wants to run Waterstone's as a 'regional and local community' orientated bookseller. Daunt describes his new boss as a 'book person who shares my belief that if you create really good bookshops, they will be commercially successful.' Certainly, even in recession Britain's publishing industry is a super-sector of the economy having generated £4.1 billion worth of income last year.
Daunt, who takes over on July 2, is clear that he doesn't like the three-for-two book offers favoured by Waterstone's in recent times but believes that 'value' does count.
All of us who are authors and love reading will hope that Mamut and Daunt can lift Waterstone's out of the rut. But online book sales and digital downloads will remain the threat as it has for its former parent HMV.
Alex Brummer is City Editor of the Daily Mail