Travel hub strategy could be too late

IT is tough out there for everyone on the high street, but things are particularly unpleasant for WH Smith. In an age of digital music downloads and film streaming, it sells CDs and DVDs. In an era of electronic communication, it sells stationary. At a time of declining circulation for paid-for newspapers and magazines, it sells newspapers and magazines. It also flogs books, like-for-like sales of which fell eight per cent in the first half. At least sweeties are selling like hotcakes. Across the group, total sales at stores open more than a year were down five per cent in the first half.

Profits actually rose in the same period, as chief executive Kate Swann took an axe to costs and moved the product mix away from the worst sellers. She is admired in the City for her cost-cutting abilities, but this is a trick that can only get you so far when the top line is shrinking.

Swann has staked the future of the business on travel outlets, where she can sell stuff at higher prices to captive consumers. Even this division performed poorly at the top line in the first half, though, with like-for-like sales down three per cent.

International expansion is also touted as a future growth engine, with a flurry of foreign openings planned for the second half. But by the end of the year, WH Smith expects to operate just 80 foreign stores, a tiny number compared to the 586 outlets it has in the UK.

Expanding in travel hubs and international locations is a sensible strategy, but success will come down to whether Swann can implement it quickly enough to offset the declining retail business.

Until then, WH Smith is predominantly a player on the troubled high street, where it gets around 70 per cent of sales and 63 per cent of operating profit.