Whsmith's Strategy

From its humble roots as a family newspaper distribution business using horse drawn carts from the first newspaper distribution warehouse, expanding by taking advantage of the spread of the rail network for both distribution and later book stalls in the stations which, in turn spread to form the company we all now recognise as W H Smith.

The corporation is divided into W H Smith Retail (high street and travel stores), W H Smith News (distribution) and W H Smith Direct (online) businesses and for the purpose of analysis it is important to understand the division between business units as competitive advantage is achieved at the level of each strategic business unit (SBU) and understood through competitive strategy whereas achieving synergy through the combination and management of the SBUs is the goal of corporate strategy. 'A diversified company has two levels of strategy: business unit (or competitive) strategy and corporate (or companywide) strategy' (Porter, 1988)

The focus of this study is specifically on the high street retail stores which can presently be divided into 4 strategic business units, books, magazines and newspapers, stationary (including greetings cards) and entertainment. They are all served through the same channel but there is considerable variety in the competitors which they face albeit there is some cross over.

'Two parts of an organisation should only be regarded as the same SBU if they are targeting the same customer types, through the same sort of channels and facing similar competitors.' (Johnson et al., 2005)

Although W H Smith high street retail as established above comprises 4 SBUs each facing different competitors, the threat of customers purchasing their products from other retailers who have staked out a more competitive strategic position is the same for each of them.

'W H Smith is caught up in a pincer movement between the supermarkets, busy nibbling away in areas such as newspapers, magazines and music as well as bestselling books and DVDs, and the specialist book and music retailers with bigger ranges, better availability and staff who actually read books.' (Hosking, 2004)

W H Smith is known as a legacy brand which suggests that the brand itself has value due to the high level of customer recognition, however this tag also points to the fact that they are considered to have made very little progress in developing the company position and have been left behind by their competitors and market developments allowing their performance to deteriorate. This is caused by a failure to pre-empt or even react to the changes that are going on around them. This is mostly a problem of the high street retail division of the business, hence the focus of this study.

Ms Swann admitted the firm had lost out to competition from supermarkets and had not helped itself by providing "an inconsistent product offer and an inadequate strategic response to competition". (BBC, July 2004)

This phenomenon is known as strategic drift and is often followed by a period of flux in which strategies are changed but with no new and clearly defined direction at which point it is necessary for transformational change to occur to avoid the eventual demise of the company.

...transformational change, in which there is a fundamental change in the strategic direction, though this is infrequent. This pattern has become known as punctuated equilibrium (which) is the tendency of strategies to develop incrementally with periodic transformational change.' (Johnson et al, 2005)

The present position of W H Smith, after several years of bad financial results, culminating in a bid by a private equity firm Permira which was curtailed due to the size of the pension deficit, Ms Swann has improved the financial results more recently through a process of consolidation on a corporate level to return funds to shareholders and targeting the supply chain with the introduction of a EPOS system and a focus on expanding the product ranges with greater focus on more popular dvds and books, also making in-store changes to increase the capacity.

'We aim to return the UK High Street Retail business to its role as Britain's most popular stationer, bookseller and newsagent ... Our plans encompass improved efficiency through cost savings and margin enhancement, while rebuilding the competitiveness and depth of our product ranges.' (Ms Swann BBC, July 2005)

Due to the amount of similarity between the business units I am not going to separate them out to deal with them, they are all commodities on which similar forces are having similar impacts. To demonstrate and categorise these industry features I am using Michael Porter's 5 forces framework (Johnson et al, 2005)

The five forces are not independent of each other and changes in one of the forces can have knock on effects with the other forces. The aim is to understand the nature and attractiveness of the industry, indentifying the drivers and allowing consideration of the impact of these forces on the SBUs on W H Smith.

Competitive rivalry

There is strong rivalry in each of the SBUs, there are many big brands including supermarkets and specialists as well as independent retailers and online retailers. There have been in the recent year's considerable price wars on books in an attempt to maintain market share in an increasingly cramped market.

The book market is in fact growing 'with the exception of weak fortnights in both March and April, sales figures for the overall book market have shown sustained growth in 2005. ... Yet W H Smith's sales in the seven weeks to 16th April were flat, following a fall of 2% over the previous six months.' (Fraser, 2005)

The explanation for this market growth which has not been achieved by the high street book sellers is clear indication of the concern for W H Smith.

'The disparity supports anecdotal evidence that internet booksellers and supermarkets are growing the market, borne out by the commercial flavour of the bestseller lists. Many independents also boast strong performances. Publishers are increasingly looking beyond the chain outlets to maintain topline growth.

The supermarkets have been less affected by the downturn in consumer confidence, and are being taken seriously by suppliers as major players in the book market. One publisher said: "Supermarkets are doing well because the titles being published are suited to the supermarket audience'

(Fraser, 2005)

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