What is the oldest retail chain in the world? A clue: it’s the same chain that’s regularly voted Britain’s ‘worst’ high street shop. And the same chain that had to apologise for selling tubes of toothpaste in hospitals for £8. And for recommending a book on Josef Fritzl as one of the “top 50 books for dad”.
It’s the same chain that’s mocked online for offering deals such as one for 50p, two for £1.50, and for stocking items months past their sell by date. And, most famously, it’s the same chain that has carpets so disheveled there’s a Twitter account dedicated to chronicling their disrepair.
The answer is, of course, WHSmith – mainstay of hospitals, stations and airports, and purveyor of dapper pens, sexy thrillers and wildly expensive Pringles.
For most chains, any of the above stories would be taken as portents forewarning a business’s imminent demise. But Smiths isn’t like most chains. This year WHSmith saw sales rise 11 per cent across the entire business, with its travel sales, up 22 per cent, looking particularly healthy. Profits from the latter sector increased by seven per cent to £44 million in the six months ending February, while total revenue in the division rose by 18 per cent. Smiths employs 13,828 people, while operating 607 high street stores, as well as 149 airport units, 127 rail units, 131 hospital units, and 286 travel units outside the UK.
The success of WHSmith is a conundrum. “They always seem to make the headlines as either being the worst in that list or very near the bottom,” says Andy Brian, a partner at Gordons LLP, referring to the survey of Britain’s least favourite retailer, carried out by Which?. “And yet the results for the most recent financial year were very good – revenue and profits were both up, which is obviously particularly impressive in the retail sector at the moment.”
The key to understanding Smiths continued success lies in the murky depths of the travel sector – specifically, the ways we shop when we are on the go.
Imagine that you’ve arrived at the airport and are preparing to hop on an EasyJet flight. You decide you need something to keep you occupied for the journey. You pop into Smith’s to buy the latest copy of WIRED, and while you’re there you buy a meal deal, along with an indulgent Twix. Then you discover you’ve forgotten your charger. Lugging all these items back to the till, you’ve already racked up a reasonable number of purchases.
At the airport, we are all a captive, trapped audience. Often, in such situations, people are driven by impulse purchases and immediate needs, and are less price sensitive and more focused on convenience. “It’s an infrequent purchase, so you don’t mind if on this one occasion you spend 20 per cent more,” says Rajesh Bhargave, associate professor of marketing at Imperial College Business School. “You don’t view it as a recurrent purchase because it’s just happening three or four times a year. But if you multiply that across all of the customers that are coming through and paying high margins, they could earn some good profits.” WHSmith’s range of items – books, stationery, magazines, newspapers, entertainment products and confectionery – cater perfectly to these kinds of impulse buys.
“They’ve run a completely different approach from many other retailers,” says Bhargrave. “Instead of investing in the quality of this service, which can be quite expensive, instead they’ve just doubled down on finding the right locations – acquiring those highly trafficked areas where they can then charge a lot on items for high margins.”
Brian agrees. “They’re not just focusing on organic growth in their existence or network of high street stores, they’re sort of adding new stores on all the time in those travel formats, and that’s generating growth.”
In some ways, this niche but highly profitable sector is shielded, and can even benefit from, downturns that have hurt the high street. Analysis published last year by the Labour Party showed there are 100,000 fewer people working in the retail industry than there were in 2015; in 2017, the UK high street lost a total of 1,800 shops.
The rise of Amazon, so damaging to bricks and mortar retail, should pose a major threat to WHSmith’s sales of books, magazines, stationery and gifts. Yet the travel sector, fuelled by impulse purchases, doesn’t work this way. “In high street locations you have a lot of customers who will come and browse, but then they don’t buy because in the moment, they’re really just doing comparison shopping,” says Bhargrave. “You’re using the store as a way to search for products. But that doesn’t happen so much in a travel location.”
While on the high street, services like next-day or even two-hour delivery have had a devastating impact, in captive markets like train stations and airports – where impulse purchases reign supreme – traditional retailers are still able to rake it in. “They’ve clearly thought, ‘can we compete against Amazon without competing directly against Amazon – what can’t Amazon do?’” says Brian. “Well, what Amazon can’t do is have a stores in those fast moving travel locations and hospitals where people just need it there and then.”
Periods where consumers have less disposable income can conversely help this sector as well, explains Clare Bailey, a retail expert. A consumer who feels flushed for cash won’t think twice about buying some of Ryanair’s inflight snacks, whereas a consumer who is feeling the pinch might opt instead to buy Smith’s (relatively) cheaper snacks before their flight.
Cornering the travel sector has actually been a mainstay of WHSmith’s business throughout most of its history. It opened its first book stall at Euston Station on November 1, 1848, in an effort to take advantage of Britain’s railway boom. These bookstalls, which began to pop up at more stations across, were soon packed with cheap and popular yellow-back publications. In 1905, a dispute with the railways over bookstall rents resulted in contracts for station sites on the Great Western and London and North Western Railways being lost. WHSmith took advantage of this loss, opening shops near, but not inside, stations. By January 1, 1906, it had opened 150 shops.
In some ways, WHSmith’s current stranglehold over the contemporary travel sector mirrors that key moment in its expansion. Much like shopping centres, airports have an overarching management structure, and can choose their best mix of retailers. Put a WHSmith in an airport terminal, for example, and it blocks any competition because airports want to pack in as much choice as possible. “In terms of how the planning for these things might go, you could sign a contract as the retailer with the airport operator to say when you do a revamp if a unit comes available, we want first dibs on it,” Bailey says. “And if you’re a large, well established business you’re considered to be lower risk.”
This cornering of the travel sector by WHSmith, says Bailey, began with Kate Swann, CEO from 2003 to 2013, and continued with her successor Steve Clarke, who stepped down recently and was replaced by Carl Cowling. The recent purchase of US airport travel retailer InMotion suggests that this push is continuing abroad. “They’re taking the existing model from the UK and trying to do the same thing in the US,” says Brian. “I don’t see that strategy shifting.”
It’s important to bare in mind that surveys like the one carried out by Which? don’t capture the entire picture. Brian says that it’s possibly “a noisy minority.” (A spokesperson for WHSmith said that just 184 shoppers had commented on its stores in the survey, compared to the 12 million customers it serves each week). “In some locations, and particularly the smaller market towns, they are the only outlet that sells the kind of things they sell,” Bailey says.
But, despite the financial success, WHSmith can’t shake its rotten reputation. Fail to do that and it risks the irreparable erosion of its brand image. “After some time you can use up your brand equity and end up in an unfavourable position and competitors will come in,” says Bhargrave. “Suddenly, all of their customers who are not loyal to them based on brand name and purpose, they’re going to lose that business.”
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