Who can resuscitate WH Smith?

WH Smith’s appointment of Delaney Lund Knox Warren as its new advertising agency could well be short lived.

The City believes that the turnaround plan being put in place by new chief executive Kate Swann may have come too late, and already it is taking bets on which private equity bidder and replacement management team ends up taking over the retailer. Analysts say that the institutional investors could well have had enough and may want out. Last week’s poor results cannot have helped, with the retailer reporting a &£26m fall in profits before tax, amortisation of goodwill and exceptionals to &£65m for the six months to February 29, and a loss before tax after exceptional items of &£72m.

Seymour Pierce analyst Richard Ratner believes that the shareholders have no loyalty to the management team, which is headed by chairman and former chief executive Richard Handover. “It is no reflection on Kate Swann it is just that she has come into it a bit late.”

To date, only Permira has put forward what appears to be a generous bid of 375p a share, valuing the retailer at &£940m, but others such as Tim Waterstone, who is a former WH Smith employee and founder of the Waterstone’s book chain, are believed to be plotting rival bids. There is even speculation that Swann herself may mount a management buy-out.

Permira has lined up two executives to take over management of the retailer – former Virgin Entertainment Group chief executive Simon Burke and Moss Bros chairman Keith Hammill. WH Smith has opened up its books for them to inspect.

Their task is huge. WH Smith is one of those stores that if it didn’t exist, would probably not now be invented. The high street has moved on in the past 20 years, and where once WH Smith may have been a destination store for newspapers, books and music, it no longer is.

Speaking to Marketing Week, Burke, who specialises in turning around businesses, says that he always starts with the brand: “In my experience, struggling brands tend not to be living up to customer expectations.”

He adds: “We resurrect the brand and work out how it resonates with customers and how the brand delivers as a means of getting people in the stores. You have to go back to the roots of the brand.”

Burke sat on the WH Smith board in the mid-Nineties, when he ran Virgin Our Price, which the book and stationery retailer then owned 75 per cent of. He quit Virgin five years ago to run Hamleys. On his arrival he found out that “the name no longer meant good things to everybody”. Shoppers did not have a “special” experience when they visited the store as the goods were expensive and it was an over-cluttered environment. Having addressed these issues, the business was turned around, and a bidding war for the company ensued last August, with Baugur picking it up for &£59m.

Burke would not be drawn further on what his plans are for WH Smith if Permira’s bid is successful.

But Mintel retail analyst Richard Perks says: “It has failed to be a destination store for anything. The fact that it is a newsagent selling magazines and newspapers does not make it a destination store and it’s not authoritative in books or music.”

It could try to reclaim ground in these sectors, but it would have to compete not only with specialist retailers such as HMV and Waterstones, but also the internet and supermarkets. Swann has earmarked DVD sales as a growth area, started developing exclusive designer stationery ranges and axed the CD singles chart. But it is unlikely that these moves alone will be enough to revitalise the WH Smith brand.

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