Will the Kindle partnership with Amazon cost Waterstones in the long run, asks Philip Downer.

Since Alexander Mamut acquired Waterstones from HMV last summer and appointed independent bookselling maestro James Daunt as managing director, there have been few strategic announcements but plenty of challenges. Most pressingly, print book sales have fallen sharply; Waterstones had no ebook solution, and needed one. 

Following WHSmith’s Kobo partnership (October 2011), most expected Waterstones to team with Barnes & Noble’s Nook. Nobody anticipated a deal with Amazon, whom Daunt has criticised vigorously in the past.

Waterstones is the final surviving national specialist book chain, but there’s no guaranteed future for the ‘last man standing’ in any retail sector affected by digitisation and the internet. 

Leadership in selling ‘entertainment software’ (in the broadest sense) has passed from high street chains to international tech corporations, and Amazon’s printed-book sales in the UK probably exceed those of all the specialist shops, from Waterstones to your local indie, added together. 

Daunt took over a company with no real digital strategy. His scope for manoeuvre was further constrained by the access controls that publishers build into ebook content to guard against a perceived piracy threat. 

These controls prohibit customers from moving content from one device to another, or lending an ebook to a friend, and allow Amazon to lock Kindle customers and ebooks together.

This creates an ideal environment for market dominance. Book buyers trust Amazon because it provides good value and a great consumer experience but its power has concerned many, not least James Daunt. Beyond an acknowledgement of the Kindle’s popularity, there has been little explanation of Waterstones’ volte-face. Perhaps it’s a case of better the devil you know?

The partnership will provide Kindle sales and promotion in every Waterstones store, in exchange for which Waterstones will realise a small percentage of the content/hardware sales it can associate to its shops and website. 

As a result of the deal, Waterstones has a highly credible online partner, but at the cost of driving its customers into its primary competitor’s arms. Amazon’s ability to exploit consumer data is second-to-none, whereas most general bookshops understand less about their customers than most other retailers.

Daunt has also announced a long-overdue store refurbishment plan. It would be wise to tie this investment into shrinking the physical chain, so that it can focus on heavy book buyers. 

The capital spending assumes a robust printed book market, with ebooks never exceeding 25% of the total market, but this could be wishful thinking. In the US, ebooks accounted for 20.2% of book unit sales in 2011, and their growth shows no signs of slowing down; the UK market is running about a year behind America.

No one denies Daunt had to act and, in the best case, a smaller and more modern Waterstones chain will develop into a sustainable vehicle for selling printed books and ebooks to specialist readers.

In the worst, it will enable Amazon to cement its domination of the newer channels to market. 

  • Philip Downer is former chief executive of Borders UK and owner of consultancy Front of Store