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I have been an observer of WHSmith for decades, I worked for them for nearly 20 years so the difficulties (or is that the challenges?) that they have been having over what seems like the past couple of decades has been interesting to watch. The last five or six years has shown that by putting pressure on costs and improving the margins gained on the merchandise that they sell their business has been able increase net profit year after year.
This approach clearly has been working well for WHS as their net profit has more than doubled between 2004 and 2010. Over the same period sales have declined by 8%. Clearly the alchemy of pulling increased net profit from declining top line sales won’t go on forever. The part of their business that is performing best is the travel division that has shown an increase in net of 150% since 2004.
Why look at what this multiple is doing? Simple, they are in our channel selling a huge volume of magazines and they are suffering the same issues of being high street retailers as many independents. Therefore watching what they are doing to grow bottom line is valuable.
2003/2004 was a year of significant change when they closed down their two international divisions so it is interesting to see that they started to build a presence overseas again in 2009. Last year they re-entered the Australian market place with a travel stores at Melbourne and Sydney airports. This month there has been a report in the Sydney Morning Herald saying that WHS will have three outlets at the redeveloped Melbourne Southern Cross railway station. This has got Australian newsagents asking will WHS start to appear in shopping malls.
I think that it’s reasonable to say that WH Smith’s having looked into the face of failure over the past decade or two now know what their real strengths are and are building a sustainable business around them.
The question for you is do you recognise your strengths and are you using them as a basis for success?
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