New chapter for Waterstones as profits jump by 80%

Buyers are circling the bookseller, which could be worth £200m

Michael Wolff’s book ‘Fire And Fury’ is ‘a phenomenal seller’ for Waterstones. Photograph: Reuters

Michael Wolff’s book ‘Fire And Fury’ is ‘a phenomenal seller’ for Waterstones. Photograph: Reuters

 

Waterstones has reported an 80 per cent jump in annual profits, with the bookseller predicting an even brighter future just six years after the rise of the ebook threatened its existence.

Sales in 2017 had been buoyed by the success of children’s books by David Walliams as well as the JK Rowling’s Harry Potter and the Cursed Child. Non-book items such greetings cards, stationery and educational toys have proved a success with browsers and now account for 10 per cent of turnover.

Waterstones operates Hodges Figgis in Dublin and also has one outlet in Cork and six in the North under the Waterstones brand.

James Daunt, the managing director of Waterstones, said the chain had transformed its fortunes since he took over in 2011, when the success of ebook readers such as Amazon’s Kindle signalled the looming demise of bricks and mortar bookselling.

“When I took over Waterstones was bust, it was losing horrendous amounts of money and the Kindle was eating away at sales,” he said. “It did look very bleak. Now it doesn’t, it’s nice and sensibly run, with every prospect of doing better still.”

Waterstones said pretax profits increased from £9.9 million (€11.2 million) to £18 million in the year to 29th April, 2017. It pointed to cost savings and a shift away from selling low margin academic course books into more profitable products like stationery and toys. 2016 was the first time Waterstones had made a profit since the 2008 financial crisis. Sales in 2017 were flat at £404 million.

Mr Daunt said the year had lacked the kind of blockbusters that send non-readers scurrying into stores. But he said 2018 would be different after the arrival of Michael Wolff’s Trump exposé Fire and Fury: “It’s a phenomenal seller.”

Referring to non-book items accounting for more than 10 per cent of sales and that Waterstones carries far fewer textbooks and technical books since 2011, Mr Daunt said:“The product mix has changed fairly significantly.

“I think the business is better run with every passing year. . It’s run with fewer people both in store and at head office.”

Mr Daunt added that the economics of running some stores had been improved by falling rents when leases were renewed.

Expanding again

With high street rivals looking to close stores as sales shift online Waterstones has begun expanding again. It opened five new bookshops in the run-up to Christmas and will open another 15 this year.

Last year Waterstones was put up for sale by its owner, the Russian billionaire Alexander Mamut, with bankers currently talking to prospective buyers, with private equity firms as well as high street rivals expected to be interested in the business which has a price tag of around £200 million.

“It’s no secret that it is for sale and it’s no secret that quite a few people are interested in it,” said Mr Daunt.

Independent retail analyst Nick Bubb suggested that chance to own Waterstones may appeal to rival high street bookseller WH Smith or even Amazon, which has opened book shops in its native US.

“It doesn’t feel like a private equity deal because they have already done the turnaround,” said Mr Bubb. “It feels like more of a trade sale. WH Smith could potentially get a deal past the competition watchdog, by saying it wants to develop Waterstones as a separate upmarket chain or to push into airports.”

When Mr Daunt joined Waterstones, readers were switching over from physical books to Kindles at an alarming rate with £100 million of sales disappearing in a 18-month period. The opposite is true today as ebook sales have been falling for several years while the physical book market is growing steadily.

– Guardian service