Thursday, 01 November 2012

The remarkable resilience of 220-year-old WH Smith

This stalwart of the nation's high streets and railway stations has remained resolutely in the black despite the retail Armageddon all around. Here's how.

Formative years

Back in 1792, Henry Walton Smith started selling newspapers and magazines in London's Little Grosvenor Street. But it was his ambitious and enterprising son William Henry who turned the family shop into one of the UK's first retail empires. During the railway boom of the mid-1800s, he set up news stands at stations all over the country, starting with Euston in 1848. Like so many successful Victorians, he founded a political dynasty as well as a business one - his son became First Lord of the Admiralty and grandson the second Viscount Hambleden. Shares in WH Smith & Son were first sold to the public in 1948 to pay death duties after the demise of the third viscount, and the last family member left the board in 1996.

Recent history

Although news, books and stationery have always been the core of Smith's operations, over the years it has also owned a DIY chain, record stores and publishers. It even invented the ISBN system for book classification, and now there are Smith's branches in motorway service stations and Post Offices to boot.

But, by the noughties, WH Smith was but a pale shadow of what it had been. Things came to a head in 2004 with a profit warning and a takeover bid from private equity outfit Permira. Only a major restructure involving the spinning out of its wholesale distribution business and huge cost reductions saved the day.

Who's the boss?

Kate Swann, although she is stepping down in July. She joined from Argos in 2003 and her nine years in charge have been a masterclass in managed decline. Despite shrinking revenues - down again this year, by 2.3% to £1.23bn - Swann has kept WH Smith profitable. The share price has more than doubled on her watch and she is bowing out on a high, handing over to Steve Clarke, who heads the firm's high street division.

The secret formula?

The crude but effective business of cutting costs faster than revenues are dropping has become known as Smith's modus operandi - and another £50m of annual savings was announced last month. But at least as importantly, gross margins have risen dramatically - from 39% in 2003 to over 53% today. Out went CDs and DVDs and in came lucrative airport concessions, where shoppers spend more freely. The $64,000 question is whether there is any more juice to come after almost a decade of relentless squeezing.

Don't mention ...

In February, Swann sold £2.3m of shares, reducing her stake in the business by some 40%. Surely that's what the analysts call a 'sell signal'?

 

VITAL STATISTICS

Revenues
 £1.23bn                                                                                                                      
Net profit
£102m
 Stores

1,200

Employees

16,000

All figures for 2012

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