Swann Song: Changes at WH Smith

The Bookseller has published a column I’ve written in response to WH Smith’s prelims announcement last week, which delivered the double whammy of £100m+ profits, and the upcoming departure of Kate Swann as Group CEO.  I’ve reproduced it below.

When the WHS announcement was made last week, two sets of instinctive responses crashed into each other.  The City reporters raised the roof for Queen Kate, during whose reign earnings-per-share have been driven to ever higher peaks, thanks to a combination of margin enhancement, cost-cutting and share buybacks.  And the naysayers pointed out that, yet again, sales were down – even in the go-go Travel division, like-for-likes keep falling.  Oh, and BTW, the store environment is pretty poor.

I try to take a slightly more nuanced (or reflective) view.  Swann has delivered extraordinary numbers through torrid times, but has she left her heir apparent, Steve Clarke (who is promising more of the same), with a sustainable model?

WH Smith has made every decision with its shareholders’ interests paramount – and that’s as it should be, am I right?  However, it is hard to escape the conclusion that those decisions have been predicated on short-to-medium term returns, rather than the sort of long-term investment that leading retailers make.  WHS is still a bricks-and-mortar company (notwithstanding a long-standing but rarely promoted transactional site, and the slightly more forward-looking Funky Pigeon online offer), trading in categories –  printed books, newspapers and magazines – that are in long-term decline.  Its overseas Travel expansion plans are broad-based – but winners need to be idenified from a pot-pourri of investments across several continents.

Retail Week has just dropped through the door, complete with a profile of Steve Clarke.  In the meantime, here’s The Bookseller piece:


Doing the splits – HMV/Waterstone’s, WH Smith, Blackwell

We may be mired in public holidays and wedding froth, but news from the bookselling end of the retail sector has been coming in like heavy artillery over the past few days.

Waterstone’s:  Every paper has been carrying the exclusive news that Alexander Mamut’s bid to acquire Waterstone’s from HMV is likely to settle at around £35m.

What nobody publicly knows yet:

  • Is £35m the headline number (total value of the deal)?  Does Mamut acquire Waterstone’s for a lower amount, paying the rest to HMV as a function a future earnings, and shoring up HMV’s balance sheert in the meantime?
  • Does £35m buy the entire estate, at around £120k per store?  Or does Mamut get a smaller number of more robustly posiotioned stores with stronger future prospects?
  • Is the current management team staying on?  Most serious observers very much hope so.  But a change of ownership to Mamut/Waterstone would inevitably bring major strategic changes in its wake.

What everybody does know is that this story has been rattling on for long enough, and for the sake of the business and its employees – and to enable HMV to focus on its core concerns – the sooner Waterstone’s sale is resolved, the better.

Afterword – late afternoon, 27th April:  “Any deal to sell Waterstones to Russian billionaire Alexander Mamut is unlikely this week, and could be several weeks off, according to sources familiar with the situation” – Retail Week

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WH Smith:  Kate Swann gave an interview at the weekend.  Kate Swann interviews come along about as regularly as Harper Lee novels, so it bore careful analysis.

Much of the discussion is around cost-cutting – threadbare carpets, cheap rail tickets etc – all of which will enable WHS to continue to deliver value to its over-stretched customers.  Like many retailers, Swann emphasises the unanticipated hike in fuel prices in recent months – a litre of diesel is now about 40% more expensive than it was in January 2009.  So, the consumer isn’t just cost-conscious becuase they’re worried about the economy, the impact of tax rises or the risk of losing their job – they are being hit hard, daily, by a major (and largely unavoidable) increase in the cost of living.

The article reiterates WHS’s plans to continue to open Travel and High Street stores, but acknowledges that many of the high street stores are now much too large for purpose (up to 27,000 sq ft), and that introducing Post Offices and other services can only go so far in mitigating overspace.  Positive like-for-like growth does not appear to be on the horizon (and this writer contiues to doubt the line that this is all down to falling sales of CDs and DVDs).

But the nub of the discussion at “Britain’s least popular store” is creating value – nearly £300m has been returned to shareholders over the past five years.  With News long gone, but international again in the ascendant, might there be a demerger of High Street and Travel?

“It’s not a plan right now, [but] if we thought it was value enhancing than that would be fine,” she says.  “We’re in the fortunate position that commercially it actually makes sense to keep the businesses separate.  They operate in different ways and buy different products.”

So what would persuade Swann to split them?  “Two things.  One, if the businesses grew to be so completely different – if the international business became a big part of travel we might well say, ‘Strategically the businesses are now competing with different people in different countries.’  Or, if it was difficult for the businesses to be valued appropriately as one entity.”

That would be a Yes, then, to WHS doing the splits.

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Blackwell:  Academic bookseller Blackwell has announced the departure of CEO Andrew Hutchings, and a separation of the academic bookselling business from the library supply arm.  Further announcements – and restructurings – are anticipated, and with only one major shareholder, the business is under less pressure to share its plans publicly than other store groups.

Library supply and retail bookselling are two different businesses; splitting them internally will make any future restructuring easier to execute.  In the meantime, good luck to Andrew, and to the new MD of Blackwell Retail, David Prescott.

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In other news… Sony have announced that their S1 and S2 tablet computers will launch in the autumn, offering major competition for Apple, with WiFi connectivity and 3G mobile internet, as well as 4G where it is available.  If you’re interested, send them your personal details, credit card numbers etc and sit tight…

But seriously, the little avalanche of bad stories about data theft (Sony) and personal tracking (Apple), allied to general concerns about “cloud” security, take us back to the early days of internet commerce and the loss of personal data to hackers.  Once you’ve built it, someone else can break it, I guess.  I’ll just (Luddite!) check through my bookcases and LP stacks to see if any of my paperbacks or albums has leaked my personal details to anyone…

Photo: Lots-a Books, Cold Lake, Alberta