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News - 4 January 2004

WH Smith Shows How Not to Do It

The High Street retailer got practically nothing right this year and is set to pay the price with departures of key personnel, probable redundancies at Head Office, disastrous profit reductions and a tumbling share price.

It seems that the group was selling the wrong products, at the wrong price and often in the wrong place. Supply chain problems meant that some stores didn’t even have key lines of product to sell at all.

Many retailers make most of the profit in the final trading quarter but the situation for WH Smith is more acute in that the last two weeks before Christmas traditionally account for 30% of their profit. Their biggest mistake was to move gifts to the front of their stores in an effort to increase retail selling space for these lines by as much as 50%. Customers confused by new store layouts and complicated “Christmas offers” that they didn’t understand left the stores empty handed not even buying their customary greetings cards and gift wrap (sales of which were down 8% on last year). And all this at a time when the chain is struggling to maintain its market share which is constantly eroded by supermarkets, discounters and specialist retailers particularly in the books and music sector.

WH Smiths has become a classic case of a well-known brand with huge high street presence that doesn’t know what it is any more. Caught in the middle ground of retail it struggles to find an identity that can enthuse the buying public. The reduction in sales of cards and wrap would indicate that the group is even losing its touch with its core product.

This disastrous performance at Christmas might mean that the chain becomes a take-over target in the new-year. It has a large historic portfolio of stores in prime locations and it is still a household name. It will not be the only retailer showing signs of a bruising Christmas. So far, apart from the supermarket chains, only John Lewis has issued good news with a 2.4% increase in sales for the six weeks to 20th December.

There are many lessons to be learned from the WH Smiths experience not least of which is that retailers must not neglect what they do best to experiment in unknown areas. The saga also reinforces the fickleness of the buying public. Basically they don’t care where they get their product from and if one shop doesn’t have it readily to hand – they won’t get a second chance.

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