British Bookshops & WH Smith

The story so far:  In mid-January,  British Bookshops & Stationers appointed Zolfo Cooper as administrators, following a disappointing Christmas.  Zolfo laid off head office staff, instituted Sale activity in all stores, and sought expressions of interest in the business.

Yesterday:  WH Smith announced that they had acquired 22 BBS stores, and the BBS intellectual property, for £1.05m.  Staff transfer to WHS, stock remains with Zolfo for disposal.

For WH Smith, this is a smart deal, allowing them to take on small stores in attractive but relatively inexpensive catchments.  Those stores can slot seamlessly into the WHS network, requiring little additional central overhead, and benefitting from WHS’s distribution network and trading terms.

Some of the stores, however, are in locations where WHS is already represented – for instance, in Dorking, WHS and BBS are practically next door to each other.  Although WHS has acquired the IP, it is difficult to see the rationale for them to maintain a secondary brand.  How many brands do you need to sell books, news/mags, stationery, gifts and art products?  If I were in Smiths’ shoes, I would have acquired the IP, in order to take it out of circulation, not to build upon it.

The only strategic flyer I might consider could be the parallel development of a value chain, along the lines of The Works, but that seems a jump too far – WHS already targets the value market through its high street promotions.  Plus, WHS has progressively divested itself of all the non-core, differently branded businesses built up in the Hornby/Field era, and no point under Kate Swann have they indicated an interest in doing anything other than driving the core brand.

What makes this deal interesting – unless it was just too good to refuse – is that the sales and location growth in recent years has all taken place in the Travel division.  The core sectors (air, rail) have been maximised, and new sectors (motorway, hospital, workplace) brought on stream.

But High Street, meanwhile, has languished – turning the screws on margin and costs has satisfied the City, but – with the exception of new developments, eg Westfield – High Street has just chugged along.  BBS was a credible threat – a core low price message that was stronger than Smith’s, and all the range you needed sold out of significantly smaller (=cheaper) premises than the heritage WHS estate.  As it turned out, the business was unsustainable in the current climate, but it created the first alternative to WHS since Menzies retired from the fray.

So…  WHS/BBS – good deal, integrate the stores, job done; or a new strategic indicator?  Given that it’s hard to see, in this spectacularly turbulent market, how those margins and costs can keep on giving, the High Street estate will require some fresh thinking.  I’ll be watching this space with keen interest.

Finally, notwithstanding all the deal hyperbole (actually, WHS doesn’t do hyperbole), 29 BBS stores are unspoken for at the time of writing.  The chances of them staying in business as bookstores do not look great, but for everyone’s sake, let’s hope their status is resolved soon.