BRAINFOOD: Behind the spin - WH Smith

THE DILEMMA

by
Last Updated: 31 Aug 2010

WH Smith - what's it for? It's the existential crisis that new chief executive Kate Swann is currently grappling with. On the one hand, WH Smith possesses a name recognisable to every high street shopper (70% of us use an outlet once a year), and over the past 212 years the company has built up a property portfolio to die for. On the other hand, an unfocused strategy and supermarket rivalry have left the beleaguered business drifting.

After three profit warnings in just over a year and disastrous Christmas trading figures, WHS is struggling to justify its place on the high street.

Swann has been promised £2.6 million to resolve the situation. Known for her plain speaking and tough action, she has been drafted in to turn around the retailer's fortunes. She has already swung the axe, and executive heads have rolled. Swann has made it clear that there will be a culling of head office staff in Swindon and London, too. The quest is also on for an early replacement for chairman Richard Handover, due to step down in 2005. It was his tenure as CEO that many blame for WH Smith's lack of focus.

THE SPIN

The spin is, no spin. Swann is clear about the company's problems. She has told the Sunday Telegraph: 'There are no short-term fixes, but there are some things we can start doing that will have an effect now. These are the good old-fashioned retail basics, such as managing costs and stock and how to schedule labour.' Swann explained the slimming down of her management team from eight to five in January as a way to speed up decision-making and tackle issues more quickly.

THE STRAIGHT TALK

WH Smith's financial nadir was its January profits warning, caused by poor performance over the crucial Christmas period. Retail expert Richard Ratner of stockbrokers Seymour Pierce said at the time: 'What has emerged can only be described as disastrous.' The board is conducting a full operational and financial review of the group, and a strategic review of its Asia-Pacific operations is likely to lead to that business being sold.

THE VERDICT

Swann appears to want to emulate another ailing high-street retailer by 'doing a Boots'. Stripping costs out of the business will help the bottom line but won't tackle the heart of the problem: what high street business does WH Smith want to be in? Just trading on its name won't be enough. Investors must be hoping that the current difficulties may be more mid-life crisis than a premature calling to the big paper shop in the sky.

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