UNDER its list of principal risks and uncertainties, yesterday’s WH Smith preliminary results included “reliance on key personnel”. The market agreed: despite a 10 per cent increase in profit before tax and a full-year dividend up 20 per cent, shares dropped sharply on the accompanying news that long-serving chief executive Kate Swann will step down next June.
That reaction is rather hard on the incoming chief executive Steve Clarke, who has been closely involved with the stationer, newsagent and bookseller’s turnaround as managing director of its high street division. Shareholders ought to take comfort that he looks set to continue to follow Swann’s way of doing things. However, there’s no getting away from the size of the shoes he has to fill. WH Smith’s performance has proved once again the power of a strong and visionary chief executive. When retailers operating in similar territory like Borders and Clinton Cards have gone to the wall or been swallowed up, WH Smith is going strong, even in this most challenging of retail environments.
Swann’s secret seems to have been to identify the potential in the travel side of WH Smith’s business, driving sales to bored, peckish and price insensitive consumers, while relentlessly focusing on margins (Clarke’s division announced a 140 basis point improvement in gross margin yesterday). The firm may find that having survived a winnowing of the sector it is well placed to be the one player of its kind that can survive.
But there are challenges ahead. Like for like sales are down five per cent and total revenue down two per cent. Betting big on travel relies on the economy picking up. Otherwise there won’t be enough tired travellers careless of their wallets having their bottle of Buxton mineral water upsold with a Terry’s chocolate orange and a copy of 50 Shades of Grey. As yesterday’s statement plaintively observed: “The business is well placed for recovery when the economy improves and passenger numbers return to growth.” There are some things even the most brilliant chief executives can’t control.
But this shows where WH Smith’s problem now lies. Clarke can continue to execute Swann’s strategy, making the planned cost savings, following the expansion plans overseas and focusing on delivering the retailing basics. But when events intervene to throw the plan off track, he will need to match Swann’s most visionary moments: pulling out of entertainment nine years ago when it accounted for a quarter of sales; building a strategic clicks and mortar partnership with ereader firm Kobo; forgoing the power of the group’s main brand to open Funkypigeon.com stores.
Swann said yesterday that she “wanted to go at the right time for Smith”, with clear plans in place for the next three years. There’s no sign that things will go off track in the near-term, but her success reminds us that following a plan is no substitute for the visionary who could write it in the first place.