Waterstones managing director James Daunt has warned that the company's future is not yet secure. It follows a public row over pay, with booksellers and authors petitioning for the retailer to pay its staff the real living wage.
Waterstones also this week released its gender pay gap report, which shows a modest improvement in the gap between the wages of male and female staff.
Speaking to The Bookseller after a bruising week in which the chain has been criticised by its own staff, and by authors, for its poor rates of pay, particularly for junior booksellers, Daunt said the row "obscured" an improving situation at the chain. "It is particularly unfair to be castigated at a time when we are making decent progress."
And Daunt warned that the business remained reliant on its shareholder after failing to "secure a modest borrowing facility" ahead of its sale. He told The Bookseller that, despite an improving financial performance over a number of years, he was unable to convince banks to support the business. "We couldn't borrow. I went round every single major lending institution and the second tier, trying to secure working capital facilities, and we couldn't borrow. We were in a situation when [under Alexander Mamut] we were wholly dependent on the shareholder, and we still are [under Elliott Advisors]."
Daunt said this background showed how any reduction in profit could harm the business. "We need to retain the confidence of our shareholder, who is also our major lender," he said, and added: "There is this idea that you go bust when you make zero profits, but actually for us it would be [when profits are at] around £10m. Your suppliers make a judgement on the basis that you have a sustainable business, and you don't when you are making less than £10m on sales of £400m. It means you are a little twitch away from going down, and they don't wait for the twitch, they nail you then and there."
The gender pay report, a snapshot of the business as of 5th April 2018, shows an 11.7% (13.9% in 2017) mean gap in favour of men in hourly pay, and a 4.7% (4.5%) median discrepancy. Waterstones noted that, as in 2017, the gap was driven by its head offices, where there were a higher number of men in senior positions and working in its IT and web departments. Across its stores, the mean gender pay gap was 6.6% (7%) with the median gap at 5.8% (4.9%). In its head offices, the mean gap was 9% (11.3%), and the median gap 8.1% (2.5%).
In terms of bonuses, 6.4% of male workers received one, compared with 6.2% of women, with the proportion significantly down on the 2017 report (75.9% and 66.7% respectively), with Waterstones saying that no company-wide bonus was paid during the year. "Only a small number of discretionary awards were made at head office and at shop level," the company stated.
Both the mean bonus pay gap of 7.1% and the median gap of 8.3% have substantially reduced compared to gaps in 2017 of 91.6% and 25% respectively. At its head offices, the bonus pay gap in 2018 was a mean gap of 64% in favour of women and a median gap of 37.4% to the advantage of men. The high gaps reported reflected the relatively small amounts paid as bonuses which translate into large percentages, the company said.
Daunt described the figures as "getting slightly better, not shameful or shaming". But he added that he remained determined to address the imbalances. "We have a very stable workforce so you are not going to see huge changes, but we will steadily have a better balance. We've got some decent policies in place now to make sure that this actually happens. In the past we promoted too slowly, which disproportionately affected women. It meant women going on maternity leave neither had the status or the pay to encourage them to come back into work. We used to lose a high, high percentage of women as a result, which makes your senior ranks very male dominated.
"All other things being equal, we should be a business that favours women. In terms of new recruits it is 65% women, and you would think that given time that would flow right up the chain, so my successor--because it does take time--will be sitting here trying to defend a gender pay gap going the other way."
In response to the pay row, Daunt said that the business was negotiating a difficult high street with new owners and a poor recent track-record. Under Daunt, Waterstones has returned to profit, reporting a pretax profit of £20m on sales of £386m in the year to end April 2018, and Daunt said the current fiscal year would see continuing improvement. But he said the business remained fragile. "We only turned profitable recently, and we are on a British high street that looks incredibly wobbly, in a segment of the market that is exceptionally competitive. We've come from such a horrendous place so recently, and if you've been bust once, you need to rebuild your credibility."
Waterstones Piccadilly bookseller April Newton launched the wages petition on Organise last month, urging Daunt to pay booksellers the real living wage of £10.55 an hour for Greater London and £9 an hour for the rest of the UK, according to The Living Wage Foundation. The rate is however 10% higher than the minimum wage, also known as the national living wage (which rose to £8.21 per hour from 1st April), which Waterstones pays to junior booksellers, and slightly ahead of what it pays senior booksellers, although in both cases there is a London weighting.
Daunt said that Newton had a "very valid point", but maintained that it was more important for the business to better reward booksellers who chose to make their careers with the business rather than raise the pay of new starters. "We pay people more if they are committed to us than if they are only staying for a year. I don't shy away from that, it's a difficult choice. We have to make uncomfortable choices, and that is ours. There is a part of our workforce that is paid less well than the others, and all of it isn't good enough, but what we offer in terms of career progression compares well to other equivalent areas. There are people paying more than us at the lower level, for example £9 an hour, but they don't pay more than that [as you progress]."
Daunt said junior booksellers were promoted within two years, and some sooner, adding that there were also "excellence awards", which rewarded recipients an extra £1,000 pro rata. There was also what Daunt described as an element of "cheating" whereby booksellers in areas outside of London where it was also more expensive to live could receive a higher hourly rate.
But he added that the intention remained to widen the pay increments earned by experienced booksellers up to manager level: "The prime focus is on raising the differentials for senior booksellers and leads--and we gave them 3% last September--and if we can that is where we will put the money. And at the same, we want to move our salaried employees up, particularly at the lower levels, and faster than at the very senior levels. The danger is that we sound complacent, and we are not, we want to put more money into the pay pot, and change the structure so that we can give out that money quickly and fairly enough to retain people and allow them to build their careers. It's about that retention: the challenge we are have is how do we attach a performance related salary around people who are committed to the business."
Daunt said that the business needed to invest about £10m a year in its estate, including an overhaul of its distribution hub, which is now 10 years old. "It is a result that as we make capital investments current staff pay a penalty for that, though in the end these investments deliver more growth. The other extreme thing would be to shrink the estate down to a profitable core, and give them all Daunt Books wages, which is great for those booksellers working in the more profitable shops, but not for the half that have just been sacked. There are some perfectly nice little shops minding their own business making nothing and causing quite a lot of complexity, particularly in the supply chain. But these stores matter, and I am very protective of them and the idea that for Waterstones it is important to have them. It sounds pious, but that is why I'm doing this job."
Daunt said he did not see unease more widely among Waterstones' staff. "I don't sense any great wave of unrest in the business, partly because most people can see our position. We are in an industry that doesn't reward. It won't help the headlines, but we've got a very fair and clearly articulated policy. One of the things this row has obscured is that we are making some progress, and although it's not remotely acceptable, it is a lot better than it was. What was a downward curve has definitely become an upward one."
He was critical of those high-profile authors who had chosen to sign an open letter arguing that "a business that cannot offer a living wage to staff without redundancies or reducing hours is not a viable business model". Daunt said: "It’s curious. That sense that, 'Oh, there's Waterstones getting a kicking, lets run over there and put another boot in'. I personally find it really unfair that there is no attempt to understand. It's really curious thing to do, considering that it has also produced a counter response [within the business]. I don’t think Kurde [Atfield, manager at Waterstones Horsham] is going to be selling their books with quite the same joy as before, and why the hell should she?" Nevertheless, he said he could understand authors supporting paying booksellers more, a belief he too held.
Responding to accusations about executive pay, and concern about how the new owners would take money from the business, Daunt said: "Alexander Mamut did profit from us, but he took a huge risk. The new owners have also put in a lot, and they have real money at risk, so it's not unreasonable that they will take a profit, too." On his own pay, he said the figures reported based on the highest paid director in the accounts were misleading: "I receive a salary that is very much higher than some of our booksellers, but nowhere near what has been represented.” He added: "I should be judged by how many shops we keep open, how many staff we employ, and whether we pay them sensibly and properly, and clearly April thinks I have come up massively short, others think differently."