Comment: How is WHSmith still managing to make money?

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Many people will be left shaking their heads in wonder today when they find out that WHSmith’s pre-tax profits for the year to the end of August have risen 10% to £102m.

Many people will be left shaking their heads in wonder today when they find out that WHSmith’s pre-tax profits for the year to the end of August have risen 10% to £102m. Despite the recession, this is a company that continues to make money hand over fist.

Should we be surprised? Maybe. When you think about the sort of products that WHSmith sells, it’s easy to question the company’s relevance on the high street. After all, consumers can now find all of these things in many other places - supermarkets, convenience stores, online - and often at a lower price.

So what is the company’s secret? For a start, WHSmith has managed to diversify a great deal during its 200 year history. It has been very adept at recognising how the market is moving, as well as how its customers like to shop. For example, as the popularity of online retailing continued to soar in 2010, WHSmith purchased the personalised greeting card business FunkyPigeon.com as well as Gadgetshop, and also launched e-book apps for the iPad and iPhone.

As a result, the company was able to attract an enormous number of new customers, not just online, but in its stores as well. Not satisfied with the additional revenue from these online businesses, the company also launched a physical version of its Funky Pigeon offering at a number of ‘high footfall’ railway stations in and around London.

The idea to use railway locations for this purpose was no accident. WHSmith was one of the first retailers to recognise consumer habits as they relate to travel hubs. In fact, this part of the business - airports, stations, ports and motorway restaurants - now exceeds the company’s high street success considerably.

WHSmith has clearly moved with the times, selling newspapers and cigarettes in locations where they are in the highest demand, and acquiring whatever companies it needs to in order to balance these real-world items with online shopping favourites such as greeting cards and books.

Acquisitions like these have been an important part of the WHSmith success story, as they have allowed the company to expand even during the downturn. In fact, just last year, we sold 22 British Bookshops and Stationers high street stores to WHSmith after the company went into administration. Bulk buys like these have been a smart move for WHSmith, as these new locations were an instant hit - acquired for a relatively small amount of money - and therefore provided the company with a number of revenue and supply chain opportunities.

The company is also highly adept at varying its store layout, product range and operating model by location. For example, look at WHSmith at St Pancras station in London: you’ll find some fast food, chargers for iPads and BlackBerrys, books, maybe some staples, you name it. Now look at a similar branch in the suburbs and you’re likely to find stacks of cigarettes and magazines instead.

All of these factors have helped to ensure that WHSmith has remained relevant over the years - and that is the real secret to the company’s success. Kate Swann has done a fantastic job as the company’s chief executive, and now Steve Clarke will need to address the same challenge. And that’s not an easy task. WHSmith will not only need to remain relevant and maintain its performance, but will also need to achieve these goals alongside a rising tide of multichannel, supermarket and convenience store competitors.