Revamped WH Smith left pounds 200m in the red
New broom: Chief executive Bill Cockburn has swept away 1,100 jobs as he tries to draw a line under retail group's problems
Thursday 13 June 1996
The costs will push WH Smith about pounds 200m into the red when it announces results in August, the first time in living memory that the 204-year- old company has recorded a loss.
The larger-than-expected costs amount to a "kitchen sinking" of the accounts and mark an attempt by the new management to draw a line under the group's recent problems.
The group's most pressing concerns have centred on the core WH Smith chain, which has been struggling with low margins, stores cluttered with too many product lines, and increasing competition from the supermarket groups, which have stolen market share in newspapers, magazines, music and video.
Mr Cockburn said the plan was to restore the group to its rightful place on the high street by the end of the decade. "We are looking for a step change within four years. It is not a quick fix. We're dealing with the habits of a lifetime. That kind of transformation takes time."
Yesterday's announcement was the final part of a five-month review of the business by Mr Cockburn, who joined from the Post Office in January.
He has identified five divisions as core businesses. They are WH Smith retail, Virgin Our Price and Waterstones in the UK as well as the WH Smith stores in the US and The Wall, the 166-strong chain of music stores in the north-eastern US.
The newspaper distribution business, WH Smith News, is regarded as non- core but will not be sold as it generates good profits. The company had already ceded its half of Do It All DIY chain to Boots, its joint venture partner in a deal that has involved pounds 160m of exceptional charges, and sold its Business Supplies office stationery business for pounds 142m. The remainder of the exceptional charges include pounds 28m for stock write-offs and pounds 23m for redundancies.
In the core WH Smith chain, the number of suppliers will be cut and the number of product lines reduced from 49,000 to 35,000 to free up space for new ranges. It will divide stores into four key areas: children's, entertainment, hobbies and leisure and Express.
This is a new venture that will see parts of stores devoted to sandwiches, drinks and other high-turnover items at special tills. It is possible WH Smith Express could be rolled out as a separate chain.
A further 80 Virgin Megastores will be opened in the next three years while 70 of the less profitable stores will be closed, reducing the total to just under 200. About 26 new branches of Waterstones will be added to the existing 100.
Of the 1,100 job losses, 300 will go at the retail headquarters in Swindon and a further 109 at the London headquarters behind Sloane Square, which will be closed. A smaller number will relocate to a cheaper London site. The remainder of the job losses were announced earlier this year. They include 580 at the news distribution division and 140 at the main retail business.
As the shares remained unchanged at 484p, analysts were divided on the plans. Nick Bubb of broker Mees Pierson said the "jury is out" on the initiatives though the company had "made all the right noises".
John Richards of NatWest Securities said: "There is still a lot of work to be done on the core retailing operations."
WH Smith's current difficulties - which started with a profits warning last May - mark a low point in the group's history. It remains one of Britain's best known high street names along with Marks & Spencer and Boots. For many it is still one of the most trustworthy names for children's educational supplies, books and a vast selection of magazines.
But it has stumbled as the family-dominated management failed to adapt to more competitive times, particularly competition from specialist chains and the supermarkets.
The stuffy, insular nature of the family domination has not helped. While many of the family members have been removed from the highest offices, the Smith family still retains a dominant stake.
But most retail analysts believe that there is still a place on the high street for WH Smith. Clive Vaughan of Verdict Research says: "I wouldn't write the brand off. Everyone knows it and everyone has shopped there. It has been a very good performer until the last 18 months. But they need to strip out some categories and deliver product authority on those they choose to concentrate on."
Nick Bubb of Mees Pierson agrees: "It is a brand people want to see and expect to see on the high street and in shopping centres, so they [the management] ought to be able to make a go of it."
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