What’s going on at WH Smith?

This article has also been published at Marketing:Blogged 

I had cause to visit my local WH Smith in Wood Green, North London, on Saturday. Disappointed at not finding some quality paper DL envelopes (very strange for a supposed top stationer) I trudged to the checkout with an inferior pack. I counted only three members of staff including the manager on the shop floor, and whilst the store was almost empty (it was near closing time) it occurred to me whilst waiting in the queue how easy shoplifters must find it, as the usual security guard wasn’t in evidence. I negotiated the convoluted path up to the tills – a ‘gauntlet of confectionary’ – to be served by the over-stressed, but very pleasant, young, female manager.

From this and previous visits, everything seems to be wrong with WH Smith for me. Gaps in their product range, demoralised and overworked staff, unacceptable queues at the tills, tired store layouts, and desperate marketing ploys like the confectionary gauntlet to squeeze out extra sales. I’ve even been propositioned before by a couple of salesmen for nPower, the energy supplier, who were allowed to ply their trade in the store! How much damage to the brand does that do? Go to Smiths for a birthday card and come out with an energy plan you don’t want! Somehow, Smiths seems to have lost its way. And I’m not the only person to thinks so… last year, Mary Portas branded WH Smith “a dump”. So in an effort to find out what’s going on at WH Smith, I’ve done a little research…

The WH Smith Plc website declares its aim as building “its position as the UK’s most popular bookseller, stationer and newsagent”. It has a twin strategy for this: its High Street plan (611 stores) is to optimise margins and develop core categories, whilst that of its ‘Travel business’ (586 stores in rail, airport and other transport locations) is to expand organically and build average transaction value. So it has two distinct strategies for two distinct channels. But are they working?

The High Street store strategy has been to discontinue products with low margins, such as CDs and DVDs, and to focus on the core areas of news, magazines, books and stationery. The City and its shareholders are happy as its share price has risen 19% over the past 5 years and there have been healthy dividends. Analysts estimate that over £125m in costs have been saved since 2005 under the CEO Kate Swan. But as Nils Pratley said in his blog in November last year, “On the high street… the game is about shedding costs faster than sales fall and defending the chain’s share of the same higher-margin products”. He reveals like-for-like sales statistics for Smith’s High Street business since 2005-06 as minus 7%, minus 6%, minus 3%, minus 6%, minus 4%, minus 6%, and minus 6%. He adds: “Common sense also says that no business can suffer declining sales indefinitely without running into problems”. Meanwhile the expansion of the number of travel outlets continues here, and abroad in places such as India such that there will soon be over 80 international travel stores.

But what about the customer? As a customer I value the Travel stores because the service is relatively quick and they have what I want for my journey. But the High Street stores have a lot to be desired and it seems to me that the drive for efficiency has gone too far and has impacted heavily on customer service, the customer experience, and the product mix. As Philip Dorgan, analyst at Panmure Gordon asks, “Can they keep going with the cost savings? As Tesco has shown, is that ultimately doing to damage the customer? You have got to be careful of cutting into the muscle”.

I’d be very interested to know what Kate Swan’s plan for the High Street stores is. How far can this ‘managed decline’ of sales go before it reaches a critical point? I’d argue that it has reached the point already where the brand is damaged. In 2010, Which? declared that this once-great name was rated bottom by High Street customers and again in 2011. Tobacco is now a major source of revenue and the chain is also thought to be the biggest seller of pornographic magazines in the country. And in its core area of books, it is being outperformed by Waterstones as a book store environment.

This is not a plan for growth but one for short-term profit. Is there a future for WH Smith on the High Street? Isn’t it time for that ‘leap in value’ that Kim and Mauborgne demanded in their book Blue Ocean Strategy? Smith’s erstwhile competitor, John Menzies, bailed out of the High Street some years ago (selling many branches to WH Smith) as competition from Waterstones and HMV increased, and went into a completely different business, buying up an aviation services company and Menzies has grown into the world’s second largest such company. Who could WH Smith sell its High Street stores to? As we know, the High Street is declining as shopping centres and supermarkets grow so there would be few takers. Or should it decide what market it is trying to serve and serve it well? At the moment it just doesn’t seem to know. But it had better make its mind up soon – remember Woolies?

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