As a long-established retailer, WH Smith will always be cherished as a national brand. But with supermarkets moving aggressively into non-food products and the growth of online shopping, retailers such as WH Smith have struggled to maintain much credit with the City.
Since the appointment of Kate Swann from Argos as chief executive in 2003, WH Smith has retreated from the entertainment market, such as CDs, DVDs and games, and reaffirmed its core role as a newsagent and stationer. The decision to rediscover its roots, say analysts, has led to an increase in profits, albeit modest ones. Outlets in airports, train stations and motorways helped to shrug off the gloom on the high street, with WH Smith reporting better-than-expected half-year profi
WH Smith also appears to be putting together a possible £50m bid for stationery chain Paperchase. Such a move will not surprise the City, which has watched Swann on an acquisition trail, snapping up hospital and airport stores and signing a franchise deal with RoadChef. If the deal goes ahead, it will buy back Paperchase, which it offloaded in 1996 as one of its poorly performing non-core businesses. At the time, losses from such divisions helped lead to a $310m (£195m) loss in 1996, reported to be the first shortfall in its 204-year history.
Paperchase is being sold by US books and music group Borders. The acquisition would add around 100 Paperchase UK stores to WH Smith’s 1,000 existing shops. “The two obviously have synergies as brands and businesses and it makes strategic sense for WH Smith to look at something like Paperchase to achieve some real growth,” says Mintel retail analyst Richard Perks.
Perks adds that with Swann, who put revitalisation of the business at the core of a strategy which also saw failing US airport business and Asia-Pacific operations axed, WH Smith should be on course for building a strong market share.
Swann inherited WH Smith at a time when it was selling music, and poor sales figures and slumps in share price over the preceding six months left it open to predatory bids. Its turnaround programme became a reality at its interim results in April this year, when it posted an 8% rise in half-year profits to £64m with stronger trading at its travel locations offsetting a sales drop on the high street. Like-for-like sales at its travel outlets increased by 1% over the six months to the end of February, although WH Smith’s traditional high street stores saw sales decline by 3%.
Planet Retail analyst Greg Hudge says: “It is easy to see why its travel outlets are doing so well. It almost has a monopoly over the travel retail space like airports and even hospitals, so this is proving to be a goldmine for WH Smith.”
It has 433 travel outlets and has announced plans to open five units at Copenhagen airport, run in partnership with a local Danish operator.
But not everyone is convinced that a focus on travel retail or the potential acquisition of Paperchase would be enough to attract investors to the business. “Travel is in the growth phase but there just might be a pause. The real question remains whether Swann can get the core high street business to grow,” Credit Suisse travel analyst Tony Shiret says. “Also, the purchase of Paperchase, viewed as a slightly irrelevant business, will be a left-field bolt-on acquisition,” he adds.
Swann’s turnaround story might be on track, but it could take a while to win back some lustre for its high street business, which continues to be battered by the supermarkets’ onslaught.
Timeline: WH Smith
1792 Opens, selling newspapers, rugs, footwarmers and games.
1979 Acquires a home centre chain, renaming it WH Smith Do It All.
1986 Acquires the 100-store Our Price Music chain.
1996 The Smith’s family management of WH Smith ends. Sells poorly performing non-core businesses, including Paperchase.
1996 Faces a takeover bid after losses of $310m (£195m), from bookstore chain founder Tim Waterstone.
1996 Foils bid by selling Waterstone’s to HMV Media.
2006 Separates retail and distribution businesses into independent, publicly-traded companies – WH Smith Plc and Smiths News.