WH Smith's £10m backlash

WH Smith's attempt to shake up the way magazines are distributed in the UK could cost it over £10m in projected profits when it renegotiates contracts with distributors.

WH Smith's attempt to shake up the way magazines are distributed in the UK could cost it over £10m in projected profits when it renegotiates contracts with distributors.

WHS's wholesale division supplies magazines to retailers under contract from three distribution companies, Frontline, Comag and Bauer.

In April 2001, WHS's contract with Frontline is due to expire. Earlier this year WHS told City analysts that it could potentially generate over £10m in incremental profits by aggressively renegotiating the contracts.

The comments were made as it launched an audacious plan to shake up the often archaic way magazines are distributed by signing exclusive distribution agreements with supermarket groups.

However, the Independent on Sunday has learned that executives at Frontline - which represents publishers Emap, Haymarket and BBC Magazines - are considering whether to award WHS's contract to another wholesaler. The move would be a major blow to WHS, which supplies nearly 30 per cent of Frontline's magazines. It is thought the company takes a 12 per cent cut of the cover price of each magazine sold.

WHS's contract with Comag, jointly owned by National Magazines and Condé Nast, is not due for renegotiation until 2005; its contract with Bauer expires in 2003.

Tesco and Safeway have signed up to the new distribution system, which WHS hopes to kick off on 2 October. But last week Tesco said it could drop its agreement with WHS if it managed to thrash out an alternative plan with the publishers.