BookBrunch

When people are being critical of Waterstone’s past decade, there tends to be a familiar tone to the accusations. A few prompts and anyone can fill in the gaps for themselves: Lost its raison d’etre… Got rid of its influential booksellers or allowed them to leave… Sold out to the mid-market… De-skilled the branches through central buying… Lost its connection to passionate book-lovers… Became a corporate behemoth. And so on.  

Hmmm. Maybe, but you could put up an alternative set of prompts that would be very defensible: Hundreds of bookshops with large breadth of stock-holding… Only committed bookselling chain still standing… Still offering a tactile browsing experience in the age of the internet. Take your pick.

To step back from this, it’s instructive to look at Waterstone’s narrative arc (to borrow from American screen writing jargon). The chain’s first eight years or so was its only pure phase, when all the stores were fresh-build Waterstone’s branches and growth was organic. Subsequently, it’s had three very big, instant boosts in its size and market share, following the merger with Sherratt & Hughes in the early Nineties, the takeover of Dillons later that decade and the takeover of Ottakar’s this decade. There have been other minor acquisitions along the way. 

Well, it would be amazing if such a series of changes had not affected the culture of the business, and its working practices. But I’m most interested in looking at the Waterstone’s story from the perspective of how markets work. In most consumer markets, it’s common to have a big mid-market player with the largest share. They tend to be efficient, appeal to broad taste, and are respected more than loved. WHSmith has held this position in books, Boots in cosmetics and toiletries, Tesco in groceries. It’s also typical for markets to have upscale brands with small shares that appeal to the exploratory, passionate consumers in that category – think of Waitrose. Of course, that’s exactly where Waterstone’s sat when it first came on to the scene. It was a discovery brand for people who cared deeply about books, and for whom browsing was an end in itself.  

Now brands that have this characteristic - be they Waterstone’s, Waitrose or Oddbins as it was - work by having a shared intimacy or affinity with customers. In essence, the idea is that the brand connects with its customers around a shared set of values regarding the product. Although it’s a business, the brand succeeds in conveying the idea that profit is a consequence, rather than the objective, of that business. And in fact that's often authentically the case with such brands. It certainly was with Waterstone’s, which was ridiculously profitable in the 1990s, despite not always making the most obviously commercial decisions.  

Sounds great. The problem, though, is that there is a natural maximum size and market share to such brands. It’s hard to quantify, but it will roughly equate to the number of "product passionate" there are as a proportion of that market. Let’s say, for the sake of argument, that it’s somewhere between five and 10%.  And there’s another problem too, which is that these "love" brands that spring up have a tendency to do very well, very quickly. Their natural audience finds them swiftly, because they are exploratory consumers, and the growth happens before there is really time to work out what’s happening. Look at Innocent drinks today, for instance.  

So let’s examine the Waterstone’s narrative again. When it merged with Sherratt’s, the newly combined business, although doubled, still had only about 7.5% market share and was still small enough to resonate with its natural audience. But when it doubled again, a few years later, with the acquisition of Dillons, its share was up around 15%, virtually on a par with WHSmith. At this point, it was a virtual certainty that the rules of how markets work would dictate that Waterstone’s evolve into something different. To service that share it had to appeal way beyond a small, niche audience, in exactly the way that Boots and Tesco do. Otherwise, it would fail as a business. Personally, I’d argue that the forces of growth and acquisition have had at least as big an impact on the evolution of the Waterstone’s brand as the demise of the NBA (remember that?) and the rise of the internet.  

Seen within that context, and to reply to the critics, it’s pretty remarkable that Waterstone’s still shares any recognisable characteristics at all to those it had in the 1980s. Although no one in their right mind would argue that it offers the same experience of shared passion and customer intimacy it did then, Waterstone’s still represents the widest range of book stock holding to be found in prime retail space, and that doesn’t look like changing any time soon.

Finally, what the growth of Waterstone’s has left is a gap. Because markets, like nature, abhor a vacuum, I’d be prepared to bet that at some stage in the near future we’ll see a new, entrepreneurial, branded bookselling venture (ie one with more growth ambition than our best independents) that will naturally fill the role of pleasing exploratory book lovers. I just hope that, if and when that happens, they’ll manage to resist the urge to grow too big. We don’t want to be reading more of these retrospectives in 20 years’ time…

Martin Lee is the co-owner of Acacia Avenue, an independent marketing consultancy based in London. Between 1995 and 2000, he was the Marketing Director of Waterstone's, and, prior to that, was at WHSmith as Head of Book Buying