WHSmith – defying gravity?

How strategic choices are shaping the future of a 200 year old retailer

As any traveller who’s forgotten their headphones will tell you, there’s a whole chunk of money to be made selling gadgets and travel accessories in airports. That’s a fact not lost on WHSmith (WHS), the 226-year old retailer that continues to transform itself into a convenience retailer for ‘people on the go’.

I have fond memories of working a Saturday job at WHSmith when it was largely a high-street based retailer of books, stationery and music. I have less fond memories of the uniform we were forced to wear. Fashion commentary aside, it’s interesting to look at how such an old business is adapting itself to the well-documented changes in the retail landscape.

From its beginnings as a newspaper vendor in a London train station, WHSmith remained in family ownership for most if its history. In 1948 the firm floated because the Smith family couldn’t pay inheritance tax and the last family member left the business in 1972. The years that followed saw rapid expansion and acquisitions – including WHSmith Travel (a travel agency), Do-it-All (a DIY chain jointly owned with Boots), Waterstones (book seller) and Our Price Records.

Squeezed middle

By the early 2000’s WHSmith sat in the ‘squeezed middle’ – uncompetitively sandwiched between specialist outlets and lower-priced supermarkets. Stores like the one I worked in were a feature of the estate – large town-centre outlets that sold a little bit of everything, but not enough books or music for fans, and at prices that looked steep compared with supermarkets that had begun expanding their non-food offer. After being the subject of a failed takeover in 2004, the group demerged its retail stores & newspaper distribution businesses and focused on restructuring its core retail business.

Over the last 5-6 years, the value of WHSmith has nearly quadrupled as the business has followed a strategy of reforming its high street stores. The share gains have roughly coincided with the tenure of its current CEO, the self-described “publicity phobic” Stephen Clarke. However the previous CEO, Kate Swann, is also credited as being the architect of the current strategy.

Current CEO: Stephen Clarke has won praise for his vocal support of workplace diversity & mental health issues

Two businesses

The business now operates over 1400 stores and has revenues of £1.26bn. Operations are split into two distinct businesses – Travel and High Street – these are run by separate management teams to different strategies, although they share some ‘back office’ and corporate services.

  • Travel generates 53% of sales, but 63% of trading profit (+7% yoy, +3% LFL)
  • High Street accounts for 46% of sales, but 37% of trading profit (-3% yoy)

So what strategy and marketing choices are being made to enable this ancient retailer to flex with apparently youthful agility?

Store location & format choices

In Travel, the strategy is about opening more new sites – both in the UK and internationally – and new formats. WHS has invested in new airport store formats at Gatwick and Heathrow, also internationally with a total of 286 units, including 8 new sites at Madrid airport alone. International sales from 27 countries now represent 20% of Travel (up from 17% last year).

The firm is introducing specialist small stores in Rail and Air channels. There are now 4 standalone technology stores and 13 standalone bookshops. Its also just announced the acquisition of InMotion – a 120-store pure play travel retailer in the US.

Operationally, WHS has become accomplished at sweating its space – with investments in category management and the ability to relay its space 3-4 times a year to cater for seasonal demands.

WHS has the dubious honour of being voted ‘worst High Street store’ in a 2018 Which? survey

For its High Street estate in the UK, the emphasis has been on efficiency – for example by increasing the return on space by changing the space allocated to different departments, keep costs down, closing a handful of uneconomic stores and getting new income from 3rd parties.

This relentless push on costs has not been without criticism; the lack of investment in legacy stores became the subject of mockery on social media with Twitter feeds documenting the run down nature of the stores. In fairness to WHS, it did increase investment in refurbishing old stores by +30% in 2018.

Many WHS high street stores are now home to a Post Office (which helps drives footfall). The retailer recently announced it would expand the partnership to another 40 sites, to bring the total of combined WHS and Post Office sites to 208.

Like many newsagents, WHS has been hit by a market-wide decline in print magazine sales

Product choices

Stationery – an increasing focus for WHS which is allocating more in-store space to a department that generates 50% of its High Street sales and 60% of its margins. Growth is coming from making seasonal events bigger (like Back-to-School and Christmas). The retailer is also becoming more agile in responding to trending items (most recently, slime (!) and previously, adult colouring books and spoof humour books) and developing its in-house design capabilities to compete in fashion-stationery.

Books – the success of the category is largely linked to the quality of book launches – success is driven by focusing marketing support on major launches by famous authors like David Walliams & Dan Brown. In the face of competition from Amazon and others, WHS has refined its offer to focus on light readers, kids and educational books.

News & impulse – the printed newspaper and magazine market continues to decline (-5% in 2017), so the retailer has sought to partially offset with emphasis on seasonal items like World Cup football stickers and Royal Wedding magazines. WHS is fighting an uphill battle here, with the market for some customer favourites like Women’s Weekly magazines declining at 11% a year.

Celebrity chef and obesity campaigner Hugh Fearnley-Whittingstall has complained about the “wall of confectionery” surrounding checkouts at WHSmith

Pricing & promotion choices

WHS is associated with the Richard & Judy Book Club which was originally based on a similar idea in the US featuring Oprah. The once daytime TV presenters would collate a list of recommended books (likely to appeal to their audience) and the impact on the sales of featured books was enormous. The segment was dropped from TV, but went online in 2010 and remains hosted on WHSmith’s website. The partnership is now in its eighth year.

WHS has been attempting to increase footfall by incentivising staff to push impulse buys like large bars of chocolate for a £1, whilst increasing prices across most product areas. Increasing use has been made of secondary sites – dumpbins and so on – to increase basket spend. This has led some to criticise the more cluttered feel of high street stores.

One of the drivers of the superior profitability in the Travel business is the relative inelasticity of prices in those channels – indeed on some products, shelf prices can be double that of their high street stores.

The Bookshop by WHSmith, like this one at Heathrow Terminal 5, is a relatively new format designed for travel hubs

Staff & service

WHS employs 14,000+ people across all its operations, according to the firm they all are united by a “progressive attitude”. Indeed there is something notable about a history characterised by invention; among the firm’s many innovations was the ISBN cataloging system for books, which was later adopted as a worldwide standard.

Some commentators would argue that when it comes to customer experience, it is a tale of two businesses – but one that is consistent with the strategy of each.

In travel, more investment is being made in hiring additional staff to cover busy periods, develop specific training programmes for the new standalone tech and book store formats, plus the introduction of specialist staff to help customers to find the right product for their journey.

However, in High Street, self-checkouts have been introduced to cut staffing costs and speed up customer journeys. Improvements to the store operating model, including technology, helped WHS save £12m in its latest financial year and promise a further £9m this year. A 10,000-respondant survey by Which? Magazine of non-food retailers found WHSmith came bottom of the list for customer service & experience.

WHSmith owns Funky Pigeon, its TV-supported e-commerce platform for greeting cards and other personalised paraphernalia

Business model choices

Like most bricks-and-mortar retailers, WHS is actively expanding its online presence. The firm acquired Funkypigeon.com (personalised stationery) which it media supports and Cultpens.com (pens). It is also seeing 10% sales growth on its own platform, whsmith.co.uk.

In parallel, the firm is pulling away from “non-core” activities like the budget card shop Cardmarket and will also stop expanding its WH Smith Local franchise for small convenience stores.

It’s been a few years since comedian Nicholas Lyndhurst appeared in TV ads for the retailer

Brand marketing choices

WHSmith was a regular TV advertiser in the 1980’s and 1990’s and combined with its high street presence and market penetration, it enjoyed almost universal awareness and brand affection among shoppers. However, in recent years the brand has relied much less on mass media and more on past reputation.

As one retail analyst commented: “There’s still a lot of affection for the brand – it just needs to live up to it.”

The right choices?

It’s hard not to be impressed with honesty and clarity of a business that recognises it’s in fact two businesses – and that manages them accordingly. If you are a WHSmith shareholder, it’s also hard to be unhappy with the returns on your investment – especially when considering the headwinds currently facing high street retailers and the number of firms that have fallen.

However, the customer experience between the two parts – Travel & High Street – is quite different and yet they are operating under the same brand. There is a risk that the experience on one store will undermine that of another. But, perhaps it is a calculated gamble – shoppers in travel are likely to prize convenience and range over store branding.

The group strategy appears to be one of managing decline in the high street business, alongside accelerated growth of more attractive channels with sharper customer propositions. Over the last few years, and some would say against the odds, WHSmith have successfully defied gravity. Time will tell if the retailer will continue to fly amid the winds of retail change and continue to carry the ‘heavier’ high street division.

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