Exactly one year ago I wrote a piece about how WH Smith rips off travellers with their monopoly in airports, train stations and motorway service stations. It provoked quite a lot of comment with complaints about their aggressive pricing.
However if you were an investor a year ago you would have paid around £7 a share and today that share would be worth around £10, an increase of c. 43%. Fantastic work if you can get it. Also WH Smith have £50m of our cash they are about to give to shareholders via a share buyback scheme, they claim to have bought back 1.6m shares at £9.57 and have also trousered another little profit for the business in the process.
This week I pulled in to a service station on the M40 for a comfort break and decided to get some water and, you guessed, the only place selling water was WH Smith. The 500 ml bottle of Evian was £1.99, I pay 80p for a 2 litre bottle in my supermarket; that’s £7.96 for 2 litres versus 80p, a massive 10 X the price of water elsewhere. I nearly walked away but was thirsty so I queued up to buy my expensive water and noticed a packet of 20 Silk Cut was £9.99, versus £8 in most shops, another 25% extra.
According to their latest trading statement for the 20 weeks to 18th January 2014 total sales were down 4% year over year. High street shops were down by 7% whereas their ‘travel’ outlets were up 2%, the statement went on to say margins were up and they are managing costs ‘very tightly’. The funny comments from customers about their stores is how scruffy they are and the carpets come in for a lot of stick.
So where they are in a competitive situation such as the high street they are experiencing declining sales, and I’m not remotely surprised, whereas their growth in absolute sales and increasing margins is being driven by the poor people who have no choice, like me the other day. The classic consequence of a monopoly.
This feels like a business where the focus is on 100% on shareholder value and little to do with their customers. The service levels at the WH Smith outlets I’ve sadly been forced to visit are dire, if questioned about any aspect of their offering the assistants just mumble and can’t answer any direct question. The chap at the M40 outlet didn’t look up, say hello, thank you or goodbye, just grunted. I would have thought any large shareholder would be questioning the customer experience because ultimately it must impact on the value of the business; just reflect on Ryanair as a result of Michael O’Leary’s constant dismissive attitude towards their passengers.
However so long as the share price keeps rising at this remarkable level I suspect money does the talking. Kate Swann’s reputation as the ex-CEO is highly regarded in the City as someone who has delivered value and growth but I wonder what value has been eroded with their customers as a result of their business strategy of greed.
If there was an alternative at airports, train stations and service stations I for one would actively choose the other one as my protest at their disregard of their customers for the benefit of their shareholders.