WH Smith needs to back to basics

WH Smith’s new managing director Beverley Hodson took up her post on June 2. A week later, the company announced that commercial director Brent Wilkinson was leaving (MW June 12) and his job was being axed.

The reason given for this almost indecent haste was that Hodson wanted to take control of Wilkinson’s responsibilities over product categories. A week was enough to decide the fate of a well-known character in the retail world, but the speed of the decision also suggests Hodson has some urgent plans for WH Smith, and may make some changes to its merchandise.

Hodson made her name as boss of Children’s World, the Boots-owned childrenswear retailer which was sold to Storehouse in May last year for 62.5m. By the time of its sale, it was producing annual profits of only 500,000 on sales of 104.8m from 56 stores. One analyst says this shows Hodson had hardly made a success of her time there but, to be fair, she joined in 1995 and had little time to effect any important changes. After the sale, Hodson joined Sears to become managing director of the Dolcis and Cable & Co shoe chains.

Wilkinson’s departure leaves control of marketing squarely in the hands of marketing director Don Sloan, another ex-Kingfisher executive and now board-level marketing director. Previously, Sloan reported to Wilkinson on all decisions. Now Sloan reports to Hodson.

The move comes just two weeks before WH Smith announces its “trading update” to advise City investors about sales across the group, which includes the Waterstone’s book chain and Virgin/Our Price music stores. In the six months to the end of last November, pre-tax profits increased from 17.3m to 38.6m but sales only rose by two per cent.

The update comes one year after chief executive Bill Cockburn announced his four-year plan to revive the retailing group’s fortunes. This led to a round of head office redundancies and cost cutting. The update will be the first real picture of how the new strategies have fared.

Sources suggest the update will reveal flat sales from the 400-strong WH Smith chain, which has been hit by strong competition from supermarket rivals on newspapers, stationery and greetings cards. The task facing Hodson is to come up with answers to a question that has dogged WH Smith for years.

The fundamental challenge is how to get the chain’s customers to spend more money in its shops. “Footfall” – retailers’ shorthand for the number of people passing through the shop doors – is high. But though the customers may pass through the stores in droves, but they usually buy a newspaper, a pencil and a couple of greetings cards and rarely spend much more than 5. This low spending is in stores with high rents, given that they are large and many are in prime high street locations. The sums simply do not add up.

The strategic review announced last June was to attack WH Smith’s problems by focusing on four product areas: children and educational; organisation and gifts; entertainment and relaxation; and express, which Hodson has just taken control of. If, as expected, the update reveals zero sales growth, Hodson may choose to alter the product focus.

One analyst suggests that WH Smith should push sales of children’s goods, such as books, games and educational resources. In the current political climate of “education, education, education,” this could prove popular with consumers. Given Hodson’s background at Children’s World, maybe this was in Cockburn’s mind when he hired her.

The move would mirror developments in the US, where a number of educational chains have been successful. It would also address another fundamental problem for WH Smith – shoppers have no particular reason to go there. The stores are not “destinations” but rather somewhere you pass by on your way to somewhere else. Giving WH Smith a stronger focus on one product area, such as education and children, may bring in fewer shoppers, but they would be there for the right reasons – to spend more money.

Another problem for the chain is the legacy of inefficient retailing systems left by the old management. Cockburn was brought in from the Post Office as chief executive at the beginning of last year to replace Sir Malcolm Field, who had been at the group for over 30 years. The old management was described by pundits as a bunch of upper-class old boys, decent chaps but with a tendency to treat retailing as a hobby.

They worked in plush offices off Sloane Square in London. At their disposal, the outdated executives even had a luxurious 19th-century mansion set in 54 acres of magnificent grounds in Oxfordshire, which was used as a “training centre”.

Cockburn, a man imbued with years of ascetic Post Office culture, quickly put these two white elephants up for sale as part of his cost-cutting drive. He warned analysts that, with WH Smith, he had inherited a “patrician management style” – lacking accountability on cost control and productivity, and with poor management of investment and changes to the group.

Cockburn has had to grapple with a poorly-organised distribution chain, which has led to goods failing to appear on shelves at the right time. He has taken this in hand, cutting product ranges and reducing the number of suppliers. He has also put distribution under the control of WH Smith News chief Richard Handover.

Over the past two years, WH Smith has increased its marketing budget and ploughed more money into advertising. But the ads, through AMV.BBDO featuring Only Fools and Horses star Nicholas Lyndhurst, reveal some of the confusion in what WH Smith offers. It is a place where you can buy records, books or stationery. But its variety is not wide enough to make it an all-embracing emporium like a department store. Nor can its record or book departments compete with the range offered by the group’s specialist chains Waterstone’s and Virgin.

WH Smith is also understood to be planning the roll-out of its “clubcard” loyalty scheme, which has been on trial over the past year. It seems an unusual development for WH Smith, given the low expenditure of its customers, and some sources say it has not performed strongly in tests. Yet the company is still in discussions on rolling it out – though maybe this is a defensive move against the loyalty schemes of supermarket rivals.

One move that could pave the way for WH Smith is the separation of the travel outlets at stations and airports from the high street division. It may be worth WH Smith looking to see if there are further ways of splitting up its store portfolio into city-centre, out-of-town or any number of other versions – a path directly followed by Woolworths.

Wilkinson’s departure, and Hodson taking control of the product ranges, may be a sign of further big changes to come at WH Smith. If the chain’s trading is flat, such changes will be necessary, and they could be radical.