WELL, there’s a surprise. Kate Swann puts down part of the improvement in the financial performance from WH Smith to “not chasing unprofitable sales”.
That the relatively new chief executive decided to adopt this strategy only serves to demonstrate the inadequacy of the regime which preceded her. Stocking shelves with products that have to be desperately discounted in order to persuade customers to buy them is not destined to benefit the bottom line but WH Smith had made a habit of it.
Ms Swann has sensibly cleaned up the WH Smith act, applying basic principles that she had practised at Argos. The result has been that, although sales were lower over the Christmas period, margins looked altogether healthier.
Investors were delighted with the news and the shares notched up a significant gain. But the benefits to be had from an application of common sense does not mean that there is a rosy future ahead for WH Smith.
Similar qualms could be voiced about Boots, which is receiving the same application of basic retail skills from Richard Baker, formerly of Asda, although his answer to Boots’s predicament is to sacrifice some margin in order to rebuild the sales that incompetent management had lost to the business.
The parallels between these two familiar high street names are well defined. The companies both reached their stock market peaks around seven years ago and now stand at roughly half that level. They have both suffered from management that failed to deliver the essentials of retailing: giving customers what they want, when they want and at competitive prices. But both have also been victims of the unceasing march of the supermarkets, particularly Asda and the all-conquering Tesco.
Much as they are both now fighting back with some conviction, the supermarket giants will not lessen their attempts to destroy these old established businesses. In order to survive, each will have to strive harder to give customers a reason to enter their stores.
On the evidence of yesterday’s news, Ms Swann’s may be the harder task. Her high street stores saw like-for-like sales down by 2 per cent over the Christmas period. Now while that might well have been the result of refusing to virtually give away product, it does beg the question of where she can eventually go to find growth. Only in the travel business was there a spark of real hope. A captive audience is a wonderful thing, and Boots, too, benefits from it with its shops on station concourses and at airports.
But away from the stations, the core newspaper and magazine business is migrating away from WH Smith to the supermarkets. This is a worry not merely for the retailers. Newspaper buyers could stop by the newsagent every day. Should people get into the habit of picking up their paper at the supermarket, it stops being a daily purchase.
The supermarkets are interested only in carrying top-selling publications, so the change in buying habits is already forcing many publishers to take their less popular magazines away from bookstalls and turn them into subscription publications. That is another potential hit for WH Smith sales.
Boots is moving out of town, finding that these larger stores do attract customers prepared do spend more, perhaps buying electrical goods as well as toiletries.
But longer term, one can imagine that the supermarkets will force chains such as Boots and WH Smith to slim down. Caught between specialist bookstores and the superstores, Ms Swann will certainly have a struggle ahead.
No time to lose your head
THOSE who have taken the time to read the full tribunal judgment in the Legal & General case will have been struck by the number of times the Financial Services Authority’s Regulatory Decisions Committee comes in for censure.
The RDC is a 30-strong group of City practitioners, great and good and sundry legal bigwigs. Lord Eatwell, the Labour peer and economist, is there. So is Elizabeth Filkin, the former Parliamentary Standards Commissioner who was so determined to do her job that Parliament decided it would be better off without her.
In theory, they exercise considerable power. They judge cases of City wrongdoing after hearing evidence from FSA investigators and the alleged wrongdoers. They are the people who set punishments, including the £2 million fine that so incensed Legal & General’s David Prosser. And as a semi-independent body, they are also in place to act as a check on the power of the FSA executive.
In practice, however, they must be enormously reliant on FSA officials. They all have busy lives and usually full-time jobs elsewhere. Unless they are exceptional individuals, it is unlikely that they will have the time to read and absorb every detail of hugely complex cases (even with the incentive of a £100 an hour reading fee).
This is one reason why the position of RDC chairman is so important. His or her time is designed to be largely devoted to the RDC, hence the post carries a salary of £150,000 for a three-day week.
Alas, there is currently no RDC chairman; there has not been since June when the last incumbent, Christopher Fitzgerald, resigned after an unfortunate gaffe that gave the impression, no doubt false, that he might not be approaching a case with an entirely independent mind. The FSA website proclaims that the chairman is Tim Herrington, but he is not due to take up the position until next month. This, surely, is the sort of mis-selling that might get a financial services firm into hot water.
The RDC is a curious beast at the best of times. It cannot afford to gain the reputation of being a rubber-stamping body.
After the L&G errors, the committee needs to do a bit of soul-searching about its methods. It also needs to rush its new chairman, a Clifford Chance veteran with an impressive reputation, into his office without delay. The sooner he gets his hands on the levers, the better.
Windows of opportunity
THERE is no logical reason why the insurance industry should be subject to cycles of feast and famine. Demand for its products should not be dictated by fads and fashions or fluctuations in consumer spending. The Lloyd’s of London chairman, Lord Levene of Portsoken, has lectured the industry about the need to break out of the cyclical mentality. But it seems insurers cannot help themselves. Nerves are fraying and premiums are beginning to be cut. It will end in tears, it always does, but the cycle, it seems, is here to stay.
