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:

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Online retail sales growth, by country and by category

There’s an interesting report in The Times today; if you have a Times subscription, I urge you to take a look behind the paywall.  The purpose of the story is track sales growth online, and there is much additional data regarding online research, different online trends across luxury/premium/mass market products, and so on.

The data has been provided by Bain & Company, and I’ve reproduced the gist of two of the graphs below.  Please note:

  • the graphs merely mimic graphics from today’s Times
  • copyright rests with Bain & Co

Just treat these charts as trend indicators:

1.  Internet retail as a percentage of total retail:

No doubt about it, we are leading the world in Britain, which makes the repurposing of our high streets and an intelligent repsonse to the Portas Report all the more vital.  The flatter growth in the US is surprising; the sudden take-off in China is no surprise at all.

And it looks as though we’ll be maintaining our UK lead in the future:

2.  Online sales forecast as a percentage of total sales, by category:

Music and video close  the decade with 95% of sales online, and books are at 75%; within these percentages a large (but unspecified) proportion of the whole will be digital downloads.

In physical products, electricals soar to just under 60%, and clothing/footwear and homewares grow significantly.  Travel and food are more stable, but still likely to see  growth.

Both charts show a percentage of spend, and are therefore not suggesting that total spending by category could rise.  They simply illustrate channel shift, and spending might just as likely fall.

As the sector returns to work, we brace ourselves for the Christmas trading statements (which we’ll be following closely on this blog) and, of course, the progress of the administrations and restructurings that were being signalled in the run-up to Christmas.  Consumers are making the most of clearance sales now, but the medium-term future for  most retail categories is very challenging.  Watch this space…