#15 Waterstones CEO: I Disdain AI Written Books, But Might Sell Them If Labelled

0:12Hello, welcome to the latest episode of Big Boss Interview. Now, today we have one of the stalwarts of the high street, somebody who's seen many a Christmas time through at various bookstores around the country, now leads one of the biggest. Felicity Hanna has been speaking to him. Felicity, hello. Who have we got today? Sean, I've been speaking to James Daunt, who's the CEO of Waterstones, and not just Waterstones, but also Barnes & Noble over in the US, which is owned by the same parent company. He's a really interesting bookseller because he just lives, thinks, breathes, dreams, books. He launched his own series of bookstores in the 90s.

0:52He was then headhunted to come and take over Waterstones when it was really struggling in 2011. When it was closing stores, it was seeing its profits absolutely plunge. He came in and he turned all that around. So it's fascinating to hear not just what he thinks of bookselling today and the high street today, but his optimism for the future because it was a really optimistic chat. I think that's what absolutely stood out for me. You sort of expect a lot of retailers to come on and talk about the struggles. He was just very, very upbeat. He was upbeat about the budget. He was upbeat about books kind of holding their own.

1:27We talked through a lot of different areas, including AI and the risk of perhaps AI created books being pushed out to the audience. We talked about romanticcy and how a lot of the audience now they want their books a bit more dragony and a little bit more spicy is how he phrased it. And this is a particularly good business to talk to in the lead up to Christmas because these Christmas buying months are absolutely key to almost every bookseller. In fact, James Daunt was saying that in the past, 100 % of profits have been made in that Christmas period. He said that that's come down a bit now that the business is able to wash its face.

2:03He said a bit more throughout the year, but Christmas is still clearly so essential for retailers of books. It's when so many of us actually think to go out and buy a physical copy. Sounds great. Well, let's hear a bit more from James Daunt, the chief executive of Waterstone.

2:22Well, I suppose I'll start by saying hello, James Daunt, CEO of Waterstone since 2011, also now CEO of Barnes & Noble, the American bookstore chain owned by the same parent company. You have a lot of books and different markets to consider. A lot of bookshops, yes, which is happily all doing different things in their different ways. but yes. How different are they? How different are the American and UK markets? Far more difference within the markets and between them. A shop in Hampstead is very different to one in Middlesbrough, a shop in New York City is very different to one in Flint, Michigan.

2:56New York and London are quite similar. So you can't make any big generalisations about the difference in the two countries' audiences? No, but overall we read the same books. We speak the same language though occasionally one might question that. Okay, well, we're in December. Christmas shopping is go. How significant is that to you? Traditionally, it's when booksellers make all of their money, and hopefully they sort of just about break even through 11 months of the year, and then Christmas comes along reliably every year, and then we make a bit of money, and that keeps us going for the following year.

3:31So how much? Can you put a number on it? How big a bulk of the of the profits that you make comes in these Christmas shopping months? Traditionally, it's been 100%. Nowadays, it's a bit less than that. We wash our face during the rest of the year, so it may be 70%, but we're still highly seasonal. And that's simply because costs in shops are fixed predominantly. And we just about cover those for 11 months of the year. And then that fixed cost is a smaller proportion during December when we do really well. So that's very interesting then. You're so reliant on consumers feeling like they can get out and shop at this time of year.

4:08And we've heard that shaky consumer confidence, retail sales fell slightly in October. What did you see? Well, it's my 36th Christmas. I'm that old. And 36 times in a row, Christmas Day has been on the 25th. And people have bought lots and lots of books and wrapped them up, put them under the Christmas tree and otherwise given them away. and we've always had a good Christmas. I think in a way, I see it the other way, that being so seasonal is a huge sort of boon to the business. You know Christmas is going to come along and it does. And how does the Christmas so far, the Christmas shopping so far, your footfall compare to, say, five years ago?

4:46We've been having a very, very good time as booksellers, I think generally, not just in the United Kingdom and the United States, but sort of globally since the pandemic. And we saw a huge rebound in the shops Once they reopened, a lot of people sort of enjoying them. And that simply hasn't gone away. And I think there was an expectation it would, but it hasn't. And 2025 has been a fabulous year for us. Because some retailers I've spoken to have said that consumers were kind of holding back. They're a bit anxious about the budget. The budget was quite late. That kind of stopped people shopping as much.

5:19Did you not see that? I don't think we ever really have. Booksellers have traditionally done very well in recessions. but I don't think it's that they've done well. It's just they haven't stopped doing whatever they were doing before the recession and therefore relative to everyone else they seem to be doing well. People read books, they're not expensive compared to most other forms of entertainment, certainly going to the cinema or the restaurant or the like and obviously a book lasts a nice long time. So people perhaps in hard times sort of trade down as we see it. Sales just sort of keep on pottering along, dependent rather more on whether there are massive books around or not.

5:54You know, if J.K. Rowling's writing Harry Potter, we have a better time of it. These days, Sarah J. Maas, Rekha Yaros type books. But generally, the quality of publishing does impact us. And this year has been a really nice year for publishing. Is there a particular genre that flies off the shelves at Christmas? Everything goes at Christmas, which is one of the joys. Books are read by the very youngest of people. You can give a book to a baby all the way to the oldest and oldest of citizens. So no, books are the universal present. And what we do see is during the year that there are sort of particular trends that take off.

6:31And as I said, sort of romanticcy is the one that people tend to focus on at the moment. But generally, it's at Christmas that all levels out. Everyone buys books for everybody. Some people can be a little bit snobbish, the word about romanticcy. But that's clearly been a significant chunk of your sales this year. I think we have over the years always had books that everybody likes reading and you know it was romance a little while ago, Colleen Hoover and the like and obviously most famous Harry Potter but there's been Fifty Shades of Grey, it's been this, that and the other and yes of course you know the literati will stick their noses in the air but it's all good fun and we enjoy it as booksellers and I think also if you are reading anything really it leads to other books.

7:16And what we're seeing at the moment, what's so exciting about it is young people reading. And they are our customers of the future. Turns out all you need really is more dragons in books then. Indeed, dragons and increasingly I'm told a certain amount of spice attached to the dragon. OK, well, you're still digesting the budget, I'm sure. Let's talk about it. What did what Rachel Reeves announced mean for you? well i seem to be about the only person who is sympathetic to the situation that she's in i i think you know for myself certainty is is helpful and perhaps a little less sort of dithering around and wondering whether they're going to do this that or the other but clearly taxes have to go up if um or public spending come has to come down or a combination of both and it seems we're heading as always seemed most sensible to a combination of both.

8:09But we've, over the last couple of years, had a very nice time of it and have found most of what has been enacted reasonably sensible from our perspective. In the narrow sense as a retailer, there were changes particularly to the business rates which impact shops, which was very helpful and something, incidentally, been calling on for decades, really. long, long overdue where the taxation on high street shops has been disproportionate and very damaging, I think, to the importance of shops within communities. And now at last, something has been done sort of more substantial than has been the case for many years.

8:47So this was a change to business rates in the budget to essentially allow smaller shops to pay less, larger shops to pay more. Were you a winner or a loser then from that? Well, we have both and therefore we benefited on one side and not on the other. But what's important for us is to be able to keep shops in as many places as possible. And we've been very steadfast in that. We haven't closed our shops in many of the less affluent parts of the United Kingdom. But we need neighbours and this will help our neighbours. And we want vigorous high streets. So we're very pleased with this. So it won't make a change to sort of where you open stores or will it change some of your larger stores?

9:31Will they potentially struggle as a result or is it just all good news? For us, I think it's all good news. It means that our shops in places that are struggling where there's a lot of vacancies and we have shops in all up and down the land and we're opening a relatively modest number, maybe 10 a year otherwise. but our existing shops are more likely to have prosperous high streets with less vacancies and that's a really good thing. What about the rise in minimum and living wages? What's your wage bill looking like now? Well obviously it's gone up. Anyone who employs lots of people and will have seen that.

10:05My own view is that that is generally a good thing and if you've got a decent business you should be aspiring to raise your wages as far as possible. Again I think the national insurance change didn't impact us greatly because we predominantly employ people who were above the thresholds, who were benefiting from the lower rate, which was taken away. So that didn't adversely impact us. And I think, you know, if you're employing people sensibly and well, you should probably welcome all of these changes. And you are very much a growing business. I mean, you're pursuing a really aggressive expansion strategy, aren't you?

10:3910 stores a year. So you must have quite a lot of optimism at the moment? I think generally booksellers, as I say, we went through some very, very dark times sort of back in 2011 through to 15 or so when e-books and the Kindle and Nook and Kobo were sort of apparently rampaging through and about to cause the demise of the physical book. Ever since then, sales have been, you know, once we sorted ourselves out, got ourselves really running nice bookshops. I think people started coming back into them and our sales went back up and that's continued pretty much in an unbroken trajectory, you know, other than when COVID forced us to close our stores.

11:21James, it's really interesting hearing you talk. Do you feel like a bit of an outlier on the high street? Because a lot of the retailers that we talk to, they're not sounding this optimistic. They're worried about their rates. They're worried about their staff bills. They're worried about footfall. You could almost be talking to me from a different street, a different country, a different universe? Perhaps it's I've been doing the same thing for a very, very long time. So my eye is seldom on today and it's as far as possible, always focused on the medium and long term. And I feel in the medium and long term, we are in a very, very good position, even in the short term.

11:53Yes, of course, you know, that the increase in the national living wage has been really extraordinary. But if you can manage your way through that, it's a hugely positive thing. and I feel that books and bookshops and reading and all the things that are attached to it remain absolutely rock solid and that's a good thing for our business. What about changes to the employment rights bill and the change to the probation period? So instead of day one rights against unfair dismissal, it's now going to be six months. I think that's a sensible thing. I think day one would have been really problematic.

12:31And that's on both sides of it. People start work. We have to know whether the employee enjoys the job and the employee needs to know whether they enjoy us. But a short probation period, three months or so, is a perfectly sensible one. And I think, broadly speaking, employees should have the protections that are available to them. And they're perfectly sensible ones. Your employees, then, they're not just people who want retail jobs, are they? You recruit book enthusiasts. How important is that to your business? A bookshop is successful if the booksellers within it are enjoying themselves and communicating that in a passion is an overused word, but probably an appropriate one for most booksellers.

13:14We are vocational by nature. But of course, when you first come and work in a bookshop, it's probably a weekend job. It may be your first job and you don't know whether it really suits you. You will probably like books and like reading, but bookselling goes way beyond that. But yes, our shops are run by our bookselling teams and it's entirely down to them as to whether the shop is a good one or a bad one. And we see shops go up and down according to how the mix of the team changes. And you've given your managers quite a lot of autonomy over the books that they order to sort of serve their local market.

13:49That's been the recipe of our success is not to, or rather to exercise as little possible sort of central control over what they do and to use the head office really in service of the shops. The head office is there to make life easier for them. Write checks when it's necessary to make sure that things work. Change the light bulbs for them. Clean the carpet. Replace this, that and the other. Make sure the books that they order turn up on time but not tell them where to put them. Not tell them what to order and certainly not tell them how to organize and arrange themselves. That's up to the team.

14:21And if they do that well, they will be producing the best possible bookshop for the community in which they live. And that's why when you go into a Waterstones, you'll find each really different to the other, but hopefully in harmony with the place in which you find it. One of the innovations that you're perhaps known for is the staff reviews sort of pinned to the shelves so people can see what your team recommends. Does that make a difference to sales? Yes, of course. I mean, everything is around recommendation. In the old days, pre-Amazon, people came into bookshops generally because they decided to buy a book and they wanted a particular title and they came in and the bookseller's job was to find that book on the shelf for them or point them in the broad direction of wherever it was.

15:07Once Amazon started fulfilling all of that demand, bookshops became places in which people came to discover books and to enjoy the whole process of buying and choosing and selecting. And then the bookseller is curation of the shop and recommendation of individual titles. The skill with which you understand from the customer what it is that they're looking for, what kind of book that they enjoy, and then putting those books in their hands. Or through things like the recommend cards and saying, here's a book we think you should read and this is why. People appreciate that recommendation. If you're doing it well, people read better books and enjoy them more.

15:45Well, you've talked about perhaps some booksellers, some people working in this retail sector, beginning as weekend jobs or first jobs. This wasn't your first job. You had a really interesting career. You left banking, in fact, to launch Daunt Books in 1990. Why did you make that leap? A very, very, very, very long time ago. I took my first job out of university, maybe as many students do, not really having a clue what I wanted to do and taking something that seemed sort of conventional and sensible and found sort of quite quickly that it wasn't quite working for me or at least wasn't working also for my then girlfriend.

16:22And I needed to find something else. And if I wasn't going to work in an office and I had a very good office job, then I needed to set up a business of my own. And I read a lot, love books, and so set up a bookshop. And that was just the beginning. I mean, you've been credited with being the man who saved Waterstones. It was in crisis when you were asked to run it. There were branch closures, collapsing profits. That was in 2011. By last year, your sales had reached£528 million, up 17 % on the previous year. I suppose the obvious question is, what's your secret? But what's your strategy then? Because a lot of people would say that with digital books, online sellers like Amazon dominating the market, screen time competing for eyeballs, it's never actually been harder to sell books.

17:09I think it's remained true and it was my conviction that a good bookshop is something that people will truly appreciate and that if you're running a good bookshop then customers and within the community are going to come in and you'll be busy and you'll have a really nice business. The secret was, one, I'd done that myself and therefore knew what the bookstore team needed to be able to run a good bookshop and then got out of the way. And we've had great success, great success with Watterson's, great success now in the United States with Barnes & Noble. And it's sort of easy and people credit me with that.

17:45Actually, what I've done is not do anything, is get out of the way and let the booksellers themselves do good work, committed work, hard work and skilled work in each of their stores. And it's just getting out of the way and allowing the booksellers to do that. So that's your strategy. That's your kind of ambition for your stores. Are there any other retailers in any sectors that you look at what they're doing and you admire how they're approaching their business? I'm in huge admiration because it looks immensely difficult and far more complicated than anything that we do because they're striving for consistency.

18:22And it's the very fact of consistency that you find in most retailers. No matter where you go, you will find exactly the same proposition pretty much. And that's really operationally hugely complicated and requires massive direction. but we stripped all of that away and we don't try to do it and it turns out that with books at least if you're a little bit more chaotic and you allow just the inspiration of the particular location to take over you do better but I don't think that would be true if you were running a clothing shop and only did this or only did that you need consistency if you're running Zara you don't need the same consistency if you're running a bookshop.

19:06Some of the kind of pleasurable chaos of a Waterstones is when you walk in, particularly this time of year, and you've got the shelves, yes, but you've also got those tables in the entrance, stacks of books. Clearly, your managers are kind of curating the Christmas bestsellers. How important are those tables with kind of all the hardbacks on? I think that's when the shop sets out its stall. And that's when as a customer, you come in, you immediately know what sort of a bookshop you're in. And again, if you walk into our Liverpool shop, you'll find a very different set of books on the tables than if you walk into our Piccadilly one.

19:44It's Piccadilly London, that is. And I think that's the skill of the book selling teams within that. But it's, you know, of course, there will be commonalities within it. And bestsellers, you know, in one shop will, you know, be present in the other, but not necessarily in the same positions, not necessarily with the same juxtaposition of titles. And overall, you'll get a very different proposition. So are publishers not kind of putting pressure on you to make sure that their authors are the ones that make those table stacks? Well, back when we first started doing this and stopped taking money for placement of books, which is the traditional model and how it was always done before, they had a nervous breakdown.

20:23But that was back in 2011-12. And since then they've got used to the fact that actually we sell far more books this way. We took over Barnes & Noble in the United States in 2019 and went through the same process. And again, they had a nervous breakdown. But if you're selling more books, then publishers ultimately are happier. So did that feel like a gamble then to change, to move away from that pay for placement proposition? Not for me, because I ran my own bookshop. And the idea of somebody telling me what to put on my tables, what to put face out, what to have as a bestseller seemed just impossibly stupid.

21:00So no, as a bookseller running the place, not at all. Financially, it was complicated because we obviously weren't getting all the money and the inducements for placing particular books in particular positions. And then there was a simple mathematical thing where we're going to need to sell an awful lot more to make the whole thing work. Happily, very quickly, we established that that was the case. Okay, so you don't like publishers telling you what to do. How would you feel about shareholders? Because you've said in the past that an IPO would be a logical step for Waterstones and Barnes & Noble.

21:33So why? Well, we're always going to unfortunately have an owner. And it would obviously be much easier if we didn't, but we do. Whether it's a private owner or a public owner, it doesn't really make a huge amount of difference, I don't think, to us. Other than that we do have a private equity owner at the moment. And the nature of private equity is that they sell you. and I think you know selling us into the public markets has always seemed you know the sensible thing to do at some point obviously it's going to be up to them to determine when we do that. Would it allow the business to grow faster further or does it just feel like it's an inevitability?

22:13From my perspective and I sort of speak with a certain amount of ignorance it feels like an inevitability and probably better than being flipped to the next private equity person who would then IPO you. At some point, exits are achieved by private equity owners. It's what they do. And typically, the public markets and IPO is how they do it. Would you be consulted, do you expect? I'm sure they'll sort of want us to carry on running the business sensibly and pragmatically, future shareholders as much as present shareholders. So I'm sure they'll say, you know, look, this is going to happen. And when it does, We'll just get on with it.

22:51Would you be surprised if it happened in 2026? I mean, there's quite a lot of talk about the reopening of the equity markets, the strong sort of presence of IPOs, quite a lot of chatter about whether it's the United States or the United Kingdom. Obviously, London has been suffering as an IPO place. But, you know, we are, you know, we're based out of London. But we have a huge American business. Barnes & Noble is much larger than Waterstones. There were actually reports, though, that you were among the companies that met Rachel Reeves recently, you yourself, in fact, to discuss kind of reviving London's listings market.

23:33What did you hear at that? There is an aspiration to get London moving again, obviously. We haven't used the Brexit word so far, but ever since Brexit, that there have been considerable complexities for businesses across the piece, including ourselves, and obviously for the wider economy, and in particular for the City of London. And I'm sure anyone who lives in this country and wants it to be as prosperous as possible, a strong city, a strong NPO market, a strong stock exchange is very much for the benefit of the nation. And we would hopefully, all other things being equal, be supportive of that.

24:14It's interesting you say the Brexit word. Why did you phrase it like that? It almost feels like a euphemism. Because Brexit is still a highly emotional subject and there are a large number of people who are hugely in favour of it and obviously it was voted for. It has been pretty catastrophic in every single respect economically and for business and I think for the nation as a whole. But that's not a particularly popular thing to say but from our perspective is true. What has it meant for Waterstones? It's created a lot of complexity in how we trade. We have a large online business actually and a lot of that was in Europe.

24:51We have a European business predominantly in Ireland but also in the Netherlands and Belgium and it's made that more difficult. And we have employed a large number particularly of seasonal employees particularly in our distribution centres and that has become more complicated. So it's added cost complexity and friction generally in how we trade. The UK publishing industry, though, still does export more books than any other country in the world? For sure. And also, typically, because it is an international publishing business, manages its rights out of London. So English language rights or particularly books that originate in English are then sold throughout the world out of the London offices.