Business analysis: Can in-store coffee bars bring back the glory days of WH Smith?

New CEO aims to make struggling retailer 'most popular stationer, bookseller and newsagent'

The new chief executive of WH Smith, Kate Swann, set out her recovery plan for the ailing retailer yesterday as she unveiled a package of cost cuts and disposals coupled with a new management incentive scheme and a pledge to return the store to its roots.

The new chief executive of WH Smith, Kate Swann, set out her recovery plan for the ailing retailer yesterday as she unveiled a package of cost cuts and disposals coupled with a new management incentive scheme and a pledge to return the store to its roots.

WH Smith famously started life as a small newsagent more than two centuries ago and that core raison d'être is at the heart of Ms Swann's blueprint, produced just days after its unwelcome takeover suitor Permira packed up its bags.

Ms Swann, who joined eight months ago from Argos, is adamant there is a future for the company regardless of what its many detractors may think. Her goal is to return WH Smith to "its role as Britain's most popular stationer, bookseller and newsagent". This means it needs to expand its ranges of pens, cards and magazines, and persuade its fleet-footed customers to do more than just browse its aisles.

The first step of the company's turnaround strategy is to sell or demerge Hodder Headline, the publishing business it acquired five years ago to the raised eyebrows of many in the City. Pearson and Lagardere of France are thought to be among the parties to have shown an interest in paying the £200m-plus price tag.

Selling Hodder would give WH Smith the headroom to tackle its pension fund deficit, which ultimately stopped Permira, the venture capitalist house stalking the company, from launching a viable takeover bid. The newsagent group pledged yesterday to inject £120m - about half the anticipated proceeds from selling Hodder - into plugging its pension fund hole in a one-off payment. It will borrow the money from a consortium of banks once Hodder is sold, slashing its deficit by half.

The group has also struck a deal with its trustees that will allow it to halve its annual payments to the fund to about £21m, while shortening its pay-down timetable to nine years from 12.

Alongside the pension fund move, Ms Swann also announced plans to cut £30m from WH Smith's costs, partly by sourcing more stationery from Far East suppliers.

Although the shares edged 2.5p higher to 289p on relief that the company had managed to ease its pension fund headache - at about £250m, the deficit is about one-third of the group's total market capitalisation - analysts were less easily impressed. Few were convinced that Ms Swann's attempts to be authoritative in say, selling cards, would deliver the group from the clutches of the market-share hungry supermarkets and specialist retailers.

Nick Bubb, of Evolution Beeson Gregory, said: "We take the vision of returning the high street chain to its previous glory with a pinch of salt." Another analyst added: "There is little there that persuades me they will be growing the top line. I just can't see where that growth is going to come from." And although Iain McDonald, at Numis Securities, was positive on the stock, he cautioned: "The only concern we have at this stage is that this strategy is really not dissimilar to that outlined by Richard Handover and Beverley Hodson [the former management team] some years ago. Therefore this is more a question of whether this management team can actually execute it this time round."

Ms Swann said: "It's not one big 'ta-dah' but a gradual improvement," adding: "We are building back authority on core product categories."

So far, this appears to have amounted to little more than double the range of greeting cards stocked in stores to about 3,500. "Oh for God's sake!" said one analyst, failing to share Ms Swann's conviction that this would persuade customers to spend more than just time in the stores.

The group reckons all its core markets are growing by 3 to 4 per cent a year - way ahead of its own meagre growth rate. With the profit margin targets of its key competitors in its sights (see table) it is confident that its bottom line, which racked up losses of £72m in the six months to 29 February, will start to look healthier.

The group has been testing ways to fit more stock in its stores in 11 trial sites, and plans to roll out its discoveries across its 550-strong high street estate by September. The extra space means it will be able to sell its full range of books and stationery throughout the year, while tapping into each season's peculiarities. So "Back to School" stationery sets shouldn't knock the humble protractor off its perch.

There will also be "best-seller bays" - which its travel retail arm uses to great effect across the country's airports and train stations - at the front of 385 stores to lure in customers.

Ms Swann's enthusiasm yesterday stretched to the group's plans for its DVD offering - part of its strategy of re-engineering its ranges to faster growing and more profitable products. By the run-up to Christmas, 67 stores will have a "destination" DVD offer of more than 2,600 titles, while 380 stores will see their ranges almost doubled to stock 1,000 titles. To fit in all this extra stock, WH Smith will slash the number of CD albums and VHS titles it stocks, while abandoning sales of CD singles completely.

It has already announced its intention to give its music wholesaling supply contract to a sub-division of Woolworths, which, Paul Smiddy of Robert W Baird Securities says, "shows a certain lack of ambition".

"WH Smith is a mature general retailer searching for areas of competitive advantage," Mr Smiddy added.

Although Ms Swann insisted she believes a niche exists "that allows us to be a mass-market retailer of books, stationery and magazines, which is differentiated against the supermarkets and against the specialist retailers", analysts begged to differ. Business for specialist shops such as HMV and Ottakar's, which stock a vast selection of back titles, is booming, while supermarkets such as Tesco use the top 100 book titles as loss leaders to tempt in roaming shoppers. Meanwhile Ryman, the stationery chain owned by Theo Paphitis, the chairman of Millwall FC, has benefited from WH Smith's troubles to boost its following.

Analysts were particularly scathing of WH Smith's plans, revealed yesterday, to sub-let spare space in its biggest stores to a range of in-store concessions. First up will be coffee shops in its 20 largest stores. "That won't do much to increase sales. People will just put a coffee-stained magazine back on the shelves when they've finished with it. If they have the space, why not sell a wider range of books and become more of a specialist?" one said.

With the group's UK travel retail chain and its news distribution arm firing on all cylinders, it knows that if it is to have any hope of an independent future it must transform the profitability of its core retail estate. It has overhauled its management team, turning to blue-chip retailers such as Dixons and Argos for seven of its top nine managers. It is banking on the introduction of a new management incentive plan, which will match any shares its top bosses buy in the company - provided they meet "certain demanding corporate performance conditions".

If not, other private equity bidders are sure to be back.

Start your day with The Independent, sign up for daily news emails
Voices
Barn owls are among species that could be affected
charity appeal
News
Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Sport
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricketEoin Morgan reportedly to take over ODI captaincy
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas