How WH Smith beat the recession and high street collapse to soar again

It’s been voted “worst shop on the high street”, described as a “dump” and was losing nine-figure sums even before the recession struck – so how is WH Smith now soaring? We take a look

In 2003, when all was well with the economy and people were still feeling rich, WH Smith lost £135 million. In 2013 it was voted “worst shop on the high street”.

Mary Portas, charged by the Government at trying to fix the high street, described it as a “dump”. An upselling strategy of trying to force-feed the nation giant chocolate bars with every purchase is deeply unpopular and there’s even a Twitter account set up to share pictures of WH Smith’s dirty carpets. @WHS_Carpet has more than 3,000 followers.

So how is it still in business after the likes of Woolworths, HMV, Clinton Cards and Comet have gone under? And how on earth are its profits now rising?

Because it’s all looking pretty rosy at WH Smith – pre-tax profits rose 6% to £108 million for the year to 31 August 2013, far better than expected. Its stock is now trading at more than double what it was before the credit crunch. It’s even being tipped to rise further.

We take a look at how it rose from a single shop to become one of the few chains to prosper as the high street falls.

The rise of a high street staple

WH Smith has been around since 1792 when Henry Walton Smith set up a news vendor in Little Grosvenor Street, London. The business was later taken over by his son William Henry Smith and in 1846 the firm became WH Smith & Son when his son – also called William Henry – became a partner. It became a public limited company in 1948.

Cashing in on the railway boom, the firm opened its first railway station newsstand at Euston in 1848.

Since the 1970s WHSmith expanded into other retail areas. The Do It All DIY stores started with an acquisition in 1979 before becoming a joint venture with Boots and eventually being sold to Boots in 1996. WH Smith also owned rival book store Waterstones between 1989 and 1998.

WH Smith bought a 75% controlling share of music chain Our Price in 1986 which it sold to Virgin in 1998. In the same year it acquired rival newsagent John Menzies for £68 million. This purchase paved the way for WH Smith's retail expansion into Scotland where Menzies had a dominant presence.

But as the new millennium dawned things were slipping. By 2003 WH Smith was in trouble. A lot of it.

Supermarkets started eating into its traditional business in books, stationery, confectionary and CDs. Online retailers such as Amazon meant prices and margins on entertainment products were being cut to wafer thin levels and in 2003 it posted one of the largest losses in its history.

WH Smith was teetering on the brink. So how did it rise again despite a global recession? Well it’s largely down to one woman.

The ugly duckling transformed by a Swann

In November 2003 WH Smith took the bold step of putting 39-year-old former Tesco graduate trainee Kate Swann in charge. It was a masterstroke.

Swann had form for turning around businesses, firstly revamping B&Q then overseeing record profits at Argos.

Nothing she did was revolutionary, but it was fundamental and often unpopular at the time. First 270 jobs went at headquarters, she then sold off non-essential and overseas businesses. In 2006 the costly final salary pension scheme was closed.

She also focused intently on the business' basics.

The emphasis of the shops moved to more profitable lines (books, stationery, papers, cards) and away from ones with smaller margins (such as DVDs, video games and CDs).

The process of ordering and getting stock to the shops was also reformed – it was badly needed. So disorganised was the previous process that Swann found items languishing in the stockrooms that were more than two years out of date; eventually £45 million worth of old products had to be written off.

She expanded into more stations, motorway services and airports – places where the demand for these items was greatest – and broke the business in half, separating the retail arm from the distribution one: WH Smith (retail) and Smiths News plc.

A branch of WH Smith in London, Tuesday January 22, 2013

Costs were rigorously controlled everywhere, from timers attached to the chiller cabinets in stores to pulping books customers return because it’s cheaper than sorting and transporting them again.

Inevitably the chain had to compete online too where customers could buy books and read newspapers at the click of a button. In October 2011 for WH Smith started selling its own ebook reader, the Kobo (an anagram of book).

Everything paid off, online and supermarket competition drove rivals like HMV and Woolworths out of business. Cost cutting was key and the travel business now accounts for the majority of the company’s profits.

Under Swann, WH Smith effectively got the recession out of the way early and put itself in the best position it could when trouble came.

Someone holding a WH Smith bag outside a store in Bristol

A revolution that didn’t stop

Cost-cutting measures weren’t a one-off drive. They continued. Recent efforts include self-service energy efficient tills in stores and the installation of voice picking in its distribution centres.

Steve Clarke, who took over from Kate Swann in July, says another £22 million of cost savings have been identified over the next three years. He also announced another £50 million share buyback scheme.

Since taking over Clarke – previously in charge of WH Smiths' UK high street business – has been busy fixing-up shops described by one analyst as "just plain tatty and [with] about as much aesthetic appeal as a 1970s job centre". Some £12 million was spent improving them last year.

And it’s growing. The high-street giant has begun a trial franchising of its brand to independent newsagents in a bid to expand its network. The initial trial this summer was limited to three stores – branded under the WH Smith Local name – but it could be expanded if it is successful.

It also has plans to open 16 more post offices in its branches and has renewed a contract to operate 82 post offices in its stores for a further five years. The move hasn’t gone down well with the Communication Workers Union (CWU) which says the deal puts the future of post offices at risk.

The company is even looking overseas and to CDs and DVDs again. With HMV and Woolworths gone, there’s an opportunity for music and DVD sales, while stronger growth overseas can compensate for a lacklustre UK market.

"The world's a big place and in the long term the potential is very big," Clarke told reporters. And just now, there isn’t a high street shop that’s exploiting that potential anything like as well as 221-year-old WH Smith.


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