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The Billionaire and the Book Lover

In the late nineties, Barnes & Noble introduced an early e-reader, and it debuted an e-bookstore in 2001. Launching into digital books was a bold, potentially transformative move. But the e-books initiative was plagued by bad luck—including a launch date of September 11—lack of support from publishers, and primitive technology; Barnes & Noble pulled the plug in 2003. With the benefit of hindsight, Riggio realizes that the company blew a crucial opportunity. “We were too early,” he said. “Too early is as bad as too late in business.”

Amazon launched the Kindle in November 2007, and Barnes & Noble has been trying to play catch-up ever since. It introduced the Nook last October. After a bumpy rollout, it has begun to make inroads with book buyers, and the company says the Nook is now its best-selling product. Still, Barnes & Noble is running far behind Amazon, which claims a 70 to 80 percent market share. Earlier this summer, Amazon announced that it now sells more e-books than hardcover books.

“Any business created before 1997 is going to be a fossil by the year 2010,” Riggio said a decade ago.

Len Riggio knows where he wants Barnes & Noble to end up: in a world, perhaps just over the horizon, where selling books is profitable, whether they are physical or digital, sold in stores or online. The problem is no one in the publishing industry quite knows how to get there, and at times Riggio has seemed overwhelmed by the task. During the gloomy period following the 2008 crash, people who interacted with him say he talked with startling pessimism. It was a trying time, both for the book business and for Riggio personally. His brother Steve, confronting an illness in the family, was scaling back his involvement as chief executive. Len ended up filling the breach, overseeing the effort to counter the Kindle, even as he tried to deal with the recession. In October 2008, Riggio penned an open letter—he’s a big letter-writer—to his employees, later republished in The Wall Street Journal. He wrote that while Barnes & Noble planned “to be around for a long time,” tough times would be coming as shoppers abandoned stores. “The result will be a ‘Darwinian’ environment,” he wrote, “and the retail species will have to adapt or face extinction.”

It was around this time that the salesman who once compared his bookstore to a supermarket came face-to-face with a new enemy: Ron Burkle, a man who had made his fortune in actual supermarkets. A tabloid regular best known for his associations with beautiful women and his remunerative friendship—now cooled—with Bill Clinton, Burkle started out by buying and consolidating grocery chains through his private-equity firm Yucaipa. He now had $7 billion in his coffers, broadening interests, and a plan to go bargain hunting. He loved the Barnes & Noble brand and, coming from outside the publishing industry (and, therefore, not prone to its apocalyptic mind-set), saw potential in the company’s greatest asset: its many well-placed stores, which, theoretically, could move on to selling other items should the physical book sales continue to wane.

That November, Burkle called Riggio, who held around 30 percent of Barnes & Noble’s stock. They knew each other well: As a private investor, Riggio had a multimillion-dollar interest in Source Interlink—a wholesale company controlled by Burkle—which was Barnes & Noble’s primary supplier of music, videos, magazines, and newspapers. That company was headed toward bankruptcy, but despite this, the two men kept up a friendly pretense. Burkle told Riggio he might be buying a significant amount of Barnes & Noble’s stock, and in late 2008, he acquired about 8 percent of the company.

Burkle followed up by inviting Riggio to a meeting at Gemma, the restaurant at the Bowery Hotel, where he was living at the time. He had some ideas. Instead of chasing Amazon’s technological lead, why not partner with Microsoft or Hewlett-Packard, which could use Barnes & Noble’s prime floor space to showcase new devices? He’d also opened a discussion with hedge-fund manager Bill Ackman, the largest shareholder in Borders, which was close to bankruptcy. “I said, ‘Len, there has to be at least one Borders store that you would love to have,’ ” Burkle would later recall. “ ‘And my guess is that there are a hundred Borders stores that you would love to have.’ ”