Why You Should Listen to Leonard
By Graham Summers
October 22, 2007

Leonard knew next to nothing about retail. But he had an eye for inefficiency.

An engineering student, he took a job at NYU's bookstore to help make ends meet. He wasn't impressed, so he decided to take a shot at it himself.

With only $5,000 in savings, he bought and opened a competing bookstore. Sales grew rapidly, and soon Leonard was borrowing $1.2 million to buy a floundering chain of booksellers. Again it was a study in inefficiency: The store had been around for more than 100 years but was barely making money.

Leonard then set about changing the way the entire industry worked.

He adopted big discounts, as much as 40% off bestsellers. Shoppers loved the idea, but industry tycoons hated it. J. Alan Kahn, from the B. Dalton chain, went to New York to meet the upstart kid. Kahn told Leonard that discounts wouldn't work and even threatened to run him out of business.

Leonard's response: "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."

To add injury to insult, Leonard later bought B. Dalton outright.

Leonard pioneered book superstores that now dominate the industry with his "Sales Annex," a massive warehouse where shoppers bought books by the pound. Leonard was also the first to advertise bookstores on TV. He opened his bookstores on Sundays. He introduced cafes. And eventually, his franchise became the largest bookseller in the U.S.

By the time Leonard was in his 50s, he'd made more than $1 billion selling books. And he's used his industry insight to make millions buying his company's stock. Leonard, in case you haven't guessed, is Leonard Riggio. His company is Barnes and Noble (BKS).

Whenever I see Leonard buying up shares on the open market, I know BKS is headed up. And Leonard just bought $6.4 million worth of BKS's stock. Readers of Inside Strategist followed him into it and we're already up 11%. I expect we'll see more gains as BKS's busiest season – the holidays – roll around.

When Leonard talks, I listen… and I know he usually puts his money where his mouth is.

Good trading,

Graham