WH Smith’s sure-fire recipe for success: scandalous prices and poor service equal high margins

I was glancing through a few year end results and spotted WH Smith, a retailer I have a grudge with. The bottom line is sales down, margins up. Sounds like a miracle in retail at the moment. So how do they manage to pull off this elusive trick? I try to avoid ranting as it can come across as sour grapes – but I decided to make an exception with them!

How many readers are regular travellers and wander in to a WH Smith? About half the retailer’s outlets are in airports/train stations/service stations; i.e. places where they have an monopolistic position.

They charge a premium of 25 percent, for example, on tobacco in these outlets. It is a scandal and they seem to get away with it. I’ve challenged staff several times but they just look blank. Also in many places they only sell packets of ten gaspers at a hugely inflated price. Again no response from the staff.

So my guess is the margin rise is a result of taking advantage of their customers in places where there isn’t any choice. This doesn’t seem that smart to me because as a sample of one I will not cross the threshold of WH Smith anywhere as a result of these regular experiences.

To add insult to injury, how many happy readers have queued up in a WHS at an airport? It is a trial of patience and subdued anger as the long line slowly curls around the crap service level – i.e. not appropriate for the demand. It is a classic example of any business with a monopoly – the absence of competition leads to high prices and rubbish service. I don’t blame the staff, they can’t change anything. But they seem to be brainwashed, incapable of having any kind of conversation, in particular why their prices for cigarettes are being sold at a premium of £2 a pack.

The outgoing CEO Kate Swann (left) is credited with doing a good job with this dubious retailer but my question is: would the brand survive if it relied only on high street presence? My guess is not, given that half of the outlets are in a ring-fenced location. Clearly in locations such as airports the usual pressures of competition don’t apply, hence the performance of any retail outlet there isn’t a reflection of what happens in the real world.

I wonder if the WHS management got the idea from ‘I saw you coming,’ a very funny Harry Enfield sketch about a shop in Notting Hill selling tat for hugely inflated prices. Sadly, in their case, it seems to work.

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About Paul Simons

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Paul joined Cadbury-Schweppes in brand management and then moved to United Biscuits. He switched to advertising in his late 20s, at Cogent Elliott and then Gold Greenlees Trott. He founded Simons Palmer Denton Clemmow & Johnson in the late 80s, one of the leading creative agencies of the 90s. Simons Palmer then merged with TBWA to create a top ten agency. Paul then joined O&M as chairman & CEO of the UK group. After three years he left to create a new AIM-quoted advertising group Cagney Plc. He is now a consultant to a number of client companies. Paul also shares his thoughts on his blog. Visit Paul Simons Blog.