THE BARON OF BOOKSBarnes & Noble's Leonard Riggio says his megastores have ''liberated'' a hidebound industry. If smaller rivals perish, so be it
As Leonard S. Riggio, chief executive of (BKS), tours his chain's newest outpost, near Atlanta, no detail escapes his notice. He proudly points to features he championed, from cathedral ceilings designed to bring a feeling of grandeur to bookbuying to handpainted signs meant to make the store look less corporate. Passing the public bathroom, he can't resist a swipe at the detractors who said they'd become a pit stop for cabdrivers--of which his father was one. That kind of marketing savvy combined with a willingness to break the rules have helped make Riggio, 57, one of the most powerful and controversial figures in the book world.
By selling books the way Home Depot Inc. (HD) sells two-by-fours, Riggio has dragged his industry kicking and screaming into the 1990s--and he has loved doing it. Between swigs of his double espresso, he gleefully recounts the changes--from deep discounts to Sunday hours to yes, even public rest rooms--that he foisted on a reluctant industry. ''The bookstore business was an elitist, stand-offish institution,'' says Riggio, during the first extensive interviews he has ever granted any publication. ''I liberated it from that.''
Most of all, he made bookstores fun, turning them into modern village greens where people flock as much for the entertainment value as the huge selection. ''He was the first retailer to understand that the store is a stage and that retailing is great theater,'' says Leonard Berry, director of the Center for Retailing Studies at Texas A&M University.
Riggio relishes the role of the populist who proved the skeptics wrong. He seems to feed on controversy and will eagerly recount stories from years earlier of himself telling the naysayers--from publishers to competitors--to stuff it. Although he cheerfully admits that he reads little and could just as easily have ended up selling housewares or hand tools as books, that need to defy convention made him uniquely suited to reinventing the hidebound world of books.
In the course of doing just that, Riggio has climbed from bookstore clerk to head of a near-ubiquitous retail chain that rings up one in eight books sold in America. With 483 Barnes & Noble superstores and 528 mall-based B.Daltons, the company inked sales in the year ended in January of $2.8 billion, over double the total four years ago. That's more than its nearest competitor, Borders Group Inc. (BGP), more than any book publisher including Random House Inc.--and it approaches all the independent bookstores combined.
Now, after years of rapid expansion, Barnes & Noble is also beginning to rack up some solid profits. After going public in 1993, the stock languished for three years because of low margins and erratic earnings. But with the pace of expansion slowing and the benefits of a new distribution center kicking in, Barnes & Noble for the first time posted four consecutive quarters of operating earnings last year. For the fiscal year ended in January, it earned $147 million on operations, up from $120 million the year before. That success sent the stock soaring from $13.50 in late 1996 to a recent $35.
COURT CHALLENGE. But with dominance has come controversy, and not just because of Riggio's abrasive style. America barely blinked when Circuit City Stores Inc. (KMX), Toys 'R' Us Inc. (TOY), and other so-called category killers consolidated their industries. Books, though, are different. ''The reason the Constitution guarantees freedom of speech and not freedom to purchase rubber bands is that the health of culture depends on the availability and the diversity of ideas, not on the availability of rubber bands,'' says Todd Gitlin, a professor of culture at New York University. ''Leonard Riggio wields immense power over the long-term health of our culture.''
Indeed, a simple decision by the mighty chain to buy or not to buy, to display or not to display, can make or break a new book--particularly one by a little-known author. That terrifies many in the literary world who see Riggio as a number-crunching businessman ready to sacrifice literature to profit. And as the independently owned bookstores that remain the sentimental heart of the business continue to fall under Barnes & Noble's relentless expansion, its power to influence what America reads will only increase.
Now, the independents are preparing to fight back in court. In April, the American Booksellers Assn., which represents 4,047 independent bookstores, filed a broad-based lawsuit against Barnes & Noble and Borders in federal court, alleging that the chains coerce publishers into giving them secret and illegal deals. Both chains deny the charges. Riggio says the idea that his business is predatory is a misperception. ''If you read The New York Times, you'd think we were killing culture,'' he complains as he tours the Atlanta store. ''I have to come here and look around to remind myself that we're giving the world a gift. It gives me goose bumps to remember what we're doing.''
Behind the bluster is a man far more complex than the profit-driven philistine his critics depict. Riggio reveals himself to be a surprising mix of liberal idealism and market-driven expedience. He has become a symbol of Big Business, yet he considers himself an entrepreneurial champion. He is accused of stifling free speech, but even foes laud him for tough stands such as his defiance of an April subpoena from special prosecutor Kenneth Starr seeking the book-buying records of Monica Lewinsky. He can be prickly and foul-mouthed, but he is also funny, philosophical, and generous--a major donor to the arts and the Democratic Party. ''For the tough-guy image from Brooklyn, there is another side,'' says Jonathan Newcomb, chief executive of Simon & Schuster Inc.
MIXED REVIEWS. Although Riggio and his chain remain controversial, a revised view of his effect on the book world is beginning to emerge. There's a growing recognition that the dire predictions about the fate of literature in a Riggio-dominated book world have not come to pass. Critics have fueled a perception of Barnes & Noble as little more than a conduit for fad books and best-sellers, but in reality, it offers a greater selection than most independents. Indeed, best-sellers accounted for just 3% of sales last year--about the same as most other bookstores. Barnes & Noble was supposed to stifle small presses, but some of those publishers say the chain's vast shelf space and centralized buying has helped them. ''The idea that they are somehow damaging literature is not true,'' says Morgan Entrekin, publisher of Grove/Atlantic Inc. ''They have leveled the playing field.''
Yet Riggio says his revolution has just gotten started. He foresees adding 500 more supersize Barnes & Noble stores over the next decade. He has plans to build his fledgling online venture into a powerhouse promotional channel that will generate interest in books--and his bookstores. He's also beginning to think about new ways to apply his merchandising prowess. In August, he'll open a 3,500 square foot prototype magazine store called Ink in a mall in Meriden, Conn. He says the venture will start small--three to four stores by October, with no more than $10 million in revenues by 2000. Further out, Riggio, who is an avid art collector, talks about opening cavernous art stores that will sell everything from posters to original works.
With his street-smart style, Riggio seems an unlikely tycoon in the genteel world of bookselling, yet he sits atop a network of businesses with total sales of $4 billion. Besides his 25% stake in Barnes & Noble, worth $600 million, he owns 90% of Barnes & Noble College Bookstores Inc., which, with sales of $800 million, operates stores on 350 campuses, and sizeable stakes in other businesses.
Riggio, who has three daughters, lives with his second wife in a sprawling apartment on Manhattan's Park Avenue. The family spends weekends at a baronial estate in Bridgehampton, N.Y., where friends say dinner guests often include blue-collar friends from Riggio's youth. ''Lenny actually eschews celebrities,'' says Angelo Volpe, president of Tennessee Technological University and a childhood friend. ''He prefers to hang out with boys from the old neighborhood.''
Volpe is referring to the predominantly Italian neighborhood in Brooklyn where Riggio grew up in a home packed with grandparents, aunts, and uncles. His father was a prizefighter, good enough to beat Rocky Graziano twice before retiring to drive a cab. Riggio, who returns occasionally in his Mercedes to visit his mother, has stayed close to his roots. His 43-year-old brother, Steve, is his vice-chairman, charged with conquering the online business. Jimmy, 47, owns a part interest in a freight company that hauls books for Barnes & Noble. ''My nationality is New York City,'' he says. ''I don't mean I'm a New Yorker like The New York Times is a New Yorker. I mean it in the Horatio Alger sense.''
TOUGH TALK. It is one of many jabs Riggio takes at the press, which he says has stereotyped him as a hothead. ''I'm not a hothead,'' he says, angrily pounding a fist on the table. ''You know who started those rumors?'' He launches into a story about a publishing exec who wanted to cut Barnes & Noble's discount by 2%. ''I asked him whether he wanted to take the door or the window,'' says Riggio heatedly.
Riggio is most offended by the frequent comparisons with his father's fight career, saying that his father, who died in 1982, was no brawler. He taught his son that being a quick thinker was just as key as having a knockout punch. ''This was about not taking hits,'' says Riggio. ''He was a genius, the most inspiring person on the face of the earth.''
Riggio's first real experience outside the neighborhood was when he entered selective Brooklyn Technical High School at age 12. ''High school was the first exposure I had to Jewish people, Asians, Hispanics, black people,'' he recalls. To fit in, he became a class clown, the guy who lured teachers through doorways just as a glob of food was set to fall. ''He'd do anything to get a rise out of you because he was a little guy,'' says William Sheluck Jr., a classmate and retired banker who sits on the Barnes & Noble board. But this is also where Riggio first displayed an intense competitive drive. Despite his short stature--Riggio stands just 5 foot 7 inches--he made the basketball team by shooting hundreds of foul shots on his own. ''Brooklyn Tech shaped me more than anything,'' he says. To show his thanks, he gave the school $1 million in March and vowed to raise $10 million more.
Riggio went on to New York University where he studied engineering at night. But his real education came from his day job at the college bookstore. It was chance, not a love of literature, that landed him there. ''If I got a job at a hardware store, I would have been Home Depot today,'' he says.
In 1965, at age 24, Riggio, with $5,000 in savings and loans, opened a competing bookstore. ''He told me he could do it better and faster,'' recalls his old boss, Al Zavelle. Passionately interested in politics, Riggio installed a mimeograph machine in the basement so students could copy antiwar literature. ''He saw his role in the world to get progressive ideas across,'' says Tibor Kalman, a well-known designer who worked at Riggio's Student Book Exchange. Riggio, who served as campaign finance chairman for New York City Mayor David Dinkins in 1993 and gave more than $138,000 to the campaigns of Dinkins and New York Governor Cuomo in 1993 and 1994, has remained politically involved.
As his student bookstore thrived, Riggio, who never finished college, grew restless. In 1971, he talked bankers into lending him $1.2 million to buy Barnes & Noble, an ailing century-old bookstore on lower Fifth Avenue. Riggio brought it back to life with a humorous TV campaign and by overhauling management and inventory.
Riggio soon added a giant Sales Annex, creating an 80,000-square-foot store crammed with an odd assortment of used books, remainders, and best-sellers. It would become a laboratory for ideas that he later refined in his national chain. Customers navigated the narrow aisles with shopping carts, picking up books that were sometimes sold by the pound. Still, nobody paid much attention until 1974, when Riggio instituted his famous discounts: 40% off New York Times best-sellers; 20% off paperback best-sellers; 10% off hardcovers. ''It forever changed the economics of bookselling,'' says Simon & Schuster's Newcomb.
Riggio, who has since scaled back the discounts, was willing to take the profit hit to draw crowds to his out-of-the-way store, but competitors feared that discounting would shrink the bottom line for everyone. He recalls a confrontation with J. Alan Kahn, an executive with Dayton Hudson Corp.'s (DH) B. Dalton chain, who flew to New York with a report proving that discounts would not work. When Riggio waved the report off, Kahn said: ''Don't open in midtown [Manhattan]. Or we'll open a store three times the size with bigger discounts and run you out of f--ing business.'' Riggio bristled: ''Is this message from you? Or are you carrying it for someone else? Because I want to know who I should tell to go f-- yourself.''
''COMMON ENEMY.'' Riggio rushed all the faster to open a giant store in Manhattan's Rockefeller Center, in 1976. But he soon hired the tough-talking Kahn for himself. Over the next decade, the pair gradually opened giant Barnes & Noble Sales Annexes around the Northeast that were the forerunners of today's superstores. Then, in 1986, backed by junk bonds from Drexel Burnham Lambert Inc. and a major investment from Vendex International, a Dutch retailer, Riggio bought B. Dalton Bookseller, and became the nation's biggest bookseller.
The acquisition set off alarm bells throughout the literary world. ''Chain bookselling means best-selling books will be available everywhere, but it also means that they--and the tapes and the calendars--leave no room for the small-press edition of a minor novel or a university-press edition of an important scholarly work,'' The Washington Post wrote at the time in an article that was typical of the outcry. ''The day I bought B.Dalton,'' Riggio laments, ''is the day I became a common enemy.''
The Dalton purchase may have put Barnes & Noble on the map, but the chain's course was anything but smooth. Riggio added the Scribner and Doubleday & Co. mall chains in the late-1980s--just in time for a decline in mall traffic, forcing him to start shutting those stores down.
In the midst of that crisis, Riggio began to sense that his huge annexes could be refined further to draw a different, bigger crowd. Retailers from Circuit City to Toys 'R' Us were beginning to dominate their niches with a ''big box'' formula that combined vast selection with low prices, and already a handful of book chains were experimenting with the same concept. In 1990, Riggio grabbed an early lead by acquiring Bookstop, a Texas-based chain of 24 superstores.
The Barnes & Noble superstore rollout began in earnest in 1991. Riggio erected hundreds of huge, free-standing bookstores of 20,000 square feet or more that were meant as destinations. He opened on Sundays and created climate-controlled village squares with cappuccino, clowns, comfy armchairs, even cooking demonstrations. With plenty of gag books and trinkets, even people who were intimidated by traditional bookstores felt welcome. ''Len Riggio understands how to make these things work as almost everything else in America does--as a theme park,'' says Nora Ephron, a writer and filmmaker whose latest movie, You Have Mail, based on the rise of the book superstores, will open this fall.
That, of course, is exactly what Riggio had in mind, a store that would draw customers from every economic and ethnic segment. His favorite Barnes & Noble, a 65,000-sq.-ft. store sprawled over four floors in Manhattan's Union Square, could be an ad for the classless society. While a man in a business suit lounges on a bench reading the latest Michael Crichton, a homeless German immigrant who calls herself Erika Yvonne sits on the floor, furiously copying from Revolution of the Mind, a biography of French surrealist poet Andre Breton. ''At the library,'' she says, ''the air and lighting are bad, and they don't have this nice music.''
As Barnes & Noble's giant big-box stores sprang up in cities and suburbs across America, the local independent bookstores fell in droves. Membership in the ABA fell from 5,132 in 1991 to 4,047 today. In 1991, independents sold nearly a third of all books, and Barnes & Noble sold only 6%. Since then, Barnes & Noble's share has more than doubled, while the independents' has fallen nearly by half. And it's not just the chains that are nabbing their business. Nonbook retailers such as discounters and warehouse clubs now account for over half of all books sold. Analysts predict the trend will continue, with Barnes & Noble doubling its share by 2005.
CHOICE DEALS? But has the expansion come fair and square? That's the question at the heart of the ABA suit. Although Riggio and the publishers say he pays the same price for books as everyone else, the independents allege that an array of special deals--from cash discounts and better terms for books returned to the publisher, to better credit terms, price breaks for new stores, and incentive payments--give the chains a substantial advantage. Riggio denies the claims, calling the suit a public-relations ploy. ''Our system was based on the principle that we should compete strenuously,'' he says. Having built an empire from nothing himself, he adds, ''I don't shed a tear for the little guy.''
But the ABA lawsuit only hints at the broader threat many in the literary world see in the Barnes & Noble phenomenon. Just 35 buyers choose all the titles sold in the chain's 1,011 stores. As the number of independents dwindles, that small group has increasing influence to decide which books are actually available to shoppers. ''Having so much control in one company's hands limits the points of view,'' says Avin Mark Domnitz, executive director of the ABA.
The notion that Barnes & Noble poses a threat to literature has dogged Riggio since he closed the B. Dalton deal, and he hotly disputes the charge. He argues that since his superstores carry a vastly greater selection--at 150,000, perhaps 10 times the titles in a small store--he's increasing choice, not reducing it. Others are beginning to agree. ''I was skeptical about the superstore concept when it started,'' says Thomas McCormack, former publisher of St. Martin's Press and columnist for Publishers Weekly. His experience in his neighborhood Barnes & Noble changed his mind. ''I go into the store on the corner and I find books I would never find without them.''
So far, anyway, it's hard to find much evidence of damage done in the numbers. The kinds of books that critics say are put most at risk by superstores are actually holding their own. Sales of art, literature, and poetry books, for example, climbed 10% from 1993 to 1996, compared with 4% for popular fiction, according to the Book Industry Study Group, a research organization.
But the numbers also show little support for the idea often floated by the chains' supporters that they have brought hordes of new readers into the market. Although Barnes & Noble's sales have ballooned, total industry sales have grown less than 5% a year since 1992, according to Veronis Suhler & Associates Inc., an investment bank specializing in media companies. ''The idea that they democratized bookselling isn't true,'' says Roxanne Coady, an ABA director who owns R.J. Julia Booksellers in Madison, Conn. However, some publishers say that superstores may have staved off an actual decline. ''God knows how dire it would be without the superstores,'' says Alberto Vitale, chief executive of Random House.
Perhaps the most credible charge against Barnes & Noble is that lesser-known books are apt to get lost amid the glitz. The best independents are small shops owned and staffed by people who love books. They're on the shop floor ''hand-selling'' books they like to customers who know and trust them. Many of the books they display are ones they've read and loved.
In contrast, the buyers at Barnes & Noble never even see the customers. And many of the books prominently featured in the stores are there because publishers have paid Barnes & Noble to promote them. ''There isn't the word-of-mouth that builds books that aren't instant phenomenons,'' says Simon & Schuster's Newcomb. ''Angela's Ashes didn't start in big stacks at the front of Barnes & Noble.'' Frank McCourt's surprise best-seller about his anguished childhood gathered momentum as staffers at thousands of independents across the country talked it up. Once it started selling, however, the chains kicked in with explosive sales. One quarter of the 2.1 million copies sold were bought at Barnes & Noble. Entrekin describes a similar experience for Cold Mountain, a first novel that became a surprise best-seller for Grove last year.
But books that don't develop such best-seller buzz--or don't have a big marketing budget behind them--may have a harder time finding an audience in a superstore, and the stores' sophisticated computers eject slower-moving books in as little as 120 days. ''This is fine for big titles,'' says Colin Day, director of University of Michigan Press. ''But for more obscure works that need more shelf time, the judgment is too fast.''
The fast turnaround also aggravates the problem of unsold books returned to publishers. In recent years, they have reached almost half of books shipped as the industry's overall increase in shelf space outpaced sales gains. Riggio says that over the past year, Barnes & Noble has worked to reduce its return rate from 28% to 19%, about the same as in independent stores.
NEW COVER. Still, the kind of firepower that helped ignite Angela's Ashes has led many in the book community to begin tempering their view of Riggio. Some publishers have come to appreciate the advent of modern retailing techniques, from sophisticated sales tracking to national promotions. ''Riggio should be accepted as a visionary,'' says Peter Gethers, publisher of Random House's Villard Books imprint. ''He should be embraced.'' Even publishers who are less gushing have accepted the notion that for better or worse, Riggio's branded, entertainment-oriented megastores are here to stay and that the quirky independent will never again dominate the industry. ''Leonard Riggio is the reality I have to deal with,'' says Susan Moldow, publisher of Simon & Schuster's Scribner imprint.
These days, publishers even turn to the powerful retailer for editorial advice. When Tom Wolfe's new novel A Man in Full appears this fall, it won't sport cover art showing a businessman going head to head with a football player. ''Barnes & Noble's buyers thought there was too much confrontation,'' says Laurie Brown, marketing director at Farrar, Straus & Giroux, Wolfe's publisher. Instead the book will feature a shot of the Atlanta skyline. Although critics view this kind of consultation as a frightening indication of where the industry is headed, others say that it's simply good sense to draw on Barnes & Noble's market knowledge.
Partly, the grudging acceptance of Riggio and his company reflects Barnes & Noble's growing clout. However, there's something else at work, something hardware stores and toy stores learned a decade ago: Given a combination of great service, huge selection, and low price, customers will respond in droves. People simply like the place.
Riggio is counting on that goodwill to help with his next venture: Barnesandnoble.com. He is, of course, far from the first to venture into online retailing. But once again, he aims to be the biggest. Launched just a year ago, Barnes & Noble's online sales are expected by analysts to grow from $14 million to about $100 million this year, compared with $400 million for industry leader Amazon.com. Riggio plans to spend $40 million to ballyhoo the service in 1998. ''Lenny is a very, very determined man,'' says Donald Trott, an analyst with Brown Brothers Harriman & Co. ''What he is saying is, 'I want this Internet business. Whatever it takes, I'm going to get it.'''
Right now, Barnes & Noble's Web site is just another place to sell books, but further out, Riggio sees the Internet as much more: It will be a book research center, a database, an ad vehicle, and, most of all, a tool to help people weed through an onslaught of information.
Riggio is already thinking ahead of how to integrate this technology into the shelves of Barnes & Noble. In the bookstore of the future, he says, customers could tap into millions of titles and print any part from these works on the spot. He talks of software programs that could point customers to specific lines in various books, threaded by a single topic, or ones that could ferret out and print obscure texts that never made it into book form. In short, Riggio envisions modifying the very concept of what constitutes a published work. ''The change in the next 10 years,'' he says, ''will be much more profound than what has happened in the last 10.'' And if Riggio has his way, Barnes & Noble will write the book on how to make it all happen.
By I. Jeanne Dugan in New York
Updated June 18, 1998 by bwwebmaster
Copyright 1998, Bloomberg L.P.