Jan 4, 2023 - Economy

Barnes & Noble to expand, marking a new chapter for private equity

Illustration of a book with the pages made of money.

Illustration: Aïda Amer/Axios

Barnes & Noble is committing to open more than 30 new stores in 2023, three years after being taken private for $683 million by Elliott Management.

Why it matters: This is a very different sort of story for private equity, which is known for buying physical retailers, slashing costs, and then leaving them for dead.

Driving the news: B&N is committing to opening more than 30 new physical locations in 2023, following its first year of net store growth in more than a decade.

  • The new openings include some locations abandoned last year by Amazon (i.e., the mortal enemy of physical booksellers), when it closed all of its Amazon Books stores.
  • This follows the company's first year of net store growth in more than a decade.

Behind the scenes: Elliott certainly followed the private equity playbook to some extent, cutting layers of corporate management and related expenses (including office space). But its primary thesis was to let B&N operate more like ... well, more like bookstores.

  • It was a learning from Elliott's prior takeover of U.K.-based Waterstones, whose CEO James Daunt was also put in charge of B&N (even though the two companies operate independently).
  • Daunt moved to let local store managers have greater say in what books to sell, ended publisher promotions that often resulted in bad books being displayed in prime locations, and eliminated a lot of the extraneous products that had turned B&N stores into indoor flea markets.
  • The pandemic obviously crushed B&N's top line in 2020 and part of 2021, but Daunt used shutdowns as an opportunity to refurbish stores, reorganize layouts and reassess stock.
  • Elliott also made some related acquisitions, most notably buying the assets of bankrupt stationary seller Paper Source. Expect that book- complementary Paper Store products will make their way into B&N locations, likely supplanting some DVD and CD shelf space.

By the numbers: B&N doesn't report financials, with a spokesperson only saying that it's "experiencing a period of tremendous growth."

  • For the final full year prior to acquisition, B&N reported $108 million in EBITDA on a $125 million net loss and around $3.6 billion in revenue. A source close to the situation says the bottom line is significantly stronger today than it was then.

The bottom line: Private equity is an unlikely hero for brick-and-mortar retail, let alone its leading bookseller. But that's the current chapter.

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