- [Narrator] This Barnes & Noble

in Pikesville, Maryland used to be

in a 24,000 square foot space in this building.

Now it's moved across the street to a space

that's less than half the size,

and with the downsizing came a new look

and new books chosen specifically

for this store's customers.

It's all part of Barnes & Noble's strategy to tailor each

of the company's more than 600 locations to local tastes.

- Barnes & Noble is adopting the strategy

of independent bookstores that it once put out of business.

- [Narrator] Here's how the bookseller

is implementing its new approach

and why it thinks this new strategy will sell more books.

This is "The Economics of Barnes & Noble."

The history of Barnes & Noble

Barnes & Noble was first founded in 1873.

In 1971, Leonard Riggio acquired the company,

which set off a period of growth.

The retailer went public in 1993

in an era when it was opening superstores

across the country.

- In the 1990s and 2000s,

Barnes & Noble bookstores really looked

like large supermarkets filled with books,

usually anchoring strip centers

in the suburbs or rural areas.

- [Narrator] And whether in Phoenix or Maryland or Ohio,

the stores had the same books

with the same furniture and the same layout.

- It either had one floor or it had two.

If it had two, it had enormous escalators going up

with this huge sort of open space in the middle

to an upper floor.

- [Narrator] That model happened to be extremely scalable.

- They were trying to fill their stores

with books and infrastructure at the lowest cost possible,

so they wanted to order all the same types of bookshelves,

the same type of furnishings

and decorations and other accoutrements.

- [Narrator] So the company grew, and fast.

Those huge stores carried more books

at lower prices than independent bookstores.

- [Interviewee] We all remember the rom com "You Got Mail."

- Joe Fox. I'm in the book business.

- I am in the book business.

- So many closed when Barnes & Noble came to town

and they weren't able to compete with the title selection

or prices that Barnes & Noble offered.

How the bookseller took a hit from digital competitors

- [Narrator] The big stores and large inventories

weren't enough to save Barnes & Noble from a digital threat.

- Amazon was able to offer, kind of like Barnes & Noble had

in the past, a huge selection of titles at lower prices

than Barnes & Noble could because it didn't have the cost

of real estate

and other costs that Barnes & Noble was shouldering.

- [Narrator] And it sunk a lot

of money trying to keep pace, particularly in NOOK,

its e-reader business.

- [Announcer] Take your story wherever you want it to go.

- [Narrator] But nothing helped stop the bleeding.

The company's revenue has declined since 2012.

Then in 2019,

hedge fund Elliott Management Corporation acquired the chain

and installed James Daunt

who led British Retailer Waterstones

and founded his own independent bookstore,

Daunt Books, as CEO.

- It felt entirely intuitive to me

that you allow each bookstore to run

as an independent bookstore.

They will create much more interesting, much more dynamic,

much more engaging bookstores.

- [Narrator] And that meant reminding people

Why the company adopted more of an independent bookstore strategy

about the appeal of in-person versus online shopping.

- What you're missing is the opportunity to kind

of read the book flaps of all the other books that are there

and maybe get recommendations

from the local bookseller who's working there.

- [Narrator] The company says

it wanted to emphasize the experience

of visiting a physical bookstore

so its new strategy strips stores of the cookie cutter look

and feel that had helped the chain grow its revenue

and store count.

Some locations have moved on

from the big box model to smaller stores.

- And in these smaller spaces,

they are reconfiguring the stores

so that they're more of maze

and less of a supermarket aisle.

- [Narrator] Plus, the company says each individual store

has more autonomy

over what books to order and how to display them.

Here at the Pikesville, Maryland location,

the store manager says that customers

like romance, books from Black authors and lots of fiction.

So the large romance section is at the front of the store

and there's a huge display right

in the center celebrating Black History Month.

Store managers can also choose how to run promotions,

like this buy one, get one 50% off deal

on specific fiction books chosen by the team here.

- Brooklyn has a very different demographic,

very different set of customers, a very different set

of book interests to let's say somebody

in Alabama, in Georgia.

Who is the best person

to judge what those particular communities wanna buy?

It's the booksellers in those communities.

- [Narrator] The company has also been listening

to its store managers on wider trends.

- Manga was a small part of our assortment.

We had maybe five, six bays of books on manga,

and yet when these booksellers

were reorganizing their stores,

they were coming back to us saying, we want to do 38.

You know, we want to do 42,

which was just almost sort of incomprehensible,

except that's what they said their customers

would respond to.

- [Narrator] Daunt also used this localizing strategy

to turn around British bookstore chain Waterstones,

which reported a 42.91 million pound loss

across 268 stores in 2012 compared

to a 16.32 million pound profit across 278 stores

six years later.

- The two businesses are on paper identical.

It had had identical histories

and had reached an identical point of failure.

What’s next for Barnes & Noble?

- [Narrator] That's why Barnes & Noble

relinquished some control

to individual stores, but that comes

with its own set of challenges for the company.

- You could walk into a bookstore and find out

that it's really not doing well.

The manager's choices aren't appealing

to customers and books aren't selling.

- [Narrator] Still Barnes & Noble says

the strategy is promising.

For the first time in more than a decade,

the company is planning

on opening more stores than it closes in 2023.

- We've seen a balancing in which a much higher percentage

of our sales are coming from books

and books are growing really very dramatically.

If you run better bookstores, you sell more books.

(pensive music)