WHSmith may be the butt of sarky humour but there is little doubting the retailer’s prowess after it reported a 9% surge in profits.

WHSmith's new store in Heathrow Terminal 2

For all the jokes about threadbare carpets, Toblerones and pressure on shoppers to use self-scan checkouts, the bookseller and stationer has consistently managed to increase profits.

WHSmith’s full-year figures made good reading as earnings again climbed. Although total group sales fell, the retailer’s travel division returned to like-for-like growth in the fourth quarter for the first time since 2008 and generated record annual profits.

If WHSmith were a book on its own shelves, it would sit firmly in the self-help section. Laser-like focus, a relentless quest for efficiencies and openness to new ideas have all helped deliver success.

WHSmith’s focus is evident at its high street arm, where space is obsessively managed as a “strategic asset”.

Chief executive Steve Clarke reported: “We work our space to maximise return on every metre drop in every store through improving margins, reducing costs and driving third-party income opportunities.”

All stores are reconfigured twice a year “driven by detailed space and product elasticity data”. Changes range from incorporating Post Offices – there are now 103 – to devoting space to high-margin products such as stationery.

A similar mindset is applied to WHSmith’s travel stores, where space allocation is also continually adapted.

At airport shops, for instance, increased space has been given over to categories such as souvenirs or digital and electrical accessories, which are growing in importance.

Cost savings

WHSmith’s focus on costs is legendary. Despite a long track-record on finding efficiencies, the retailer said that it can deliver another £11m of cost savings at the high street business, ratcheting up the target to £21m over the next three years.

Critics believe that penny-pinching is evident in the quality of store environments – there is even a Twitter account, @WHS_Carpet, devoted to the state of the retailer’s carpets.

But Clarke maintains that many of the cost-savings made are not a result of skimping on essentials.

“Our cost base is substantial so there’s lots to go for,” he says. “You often find they come from investment in technology and they’re not customer-facing.”

They range from opportunities arising as leases are renewed to marketing contract renegotiation to investment that brings long-term returns, such as the introduction of energy-efficient lighting to back office space in shops.

Some of the changes have resulted in staff being able to spend more time on the shopfloor, despite the view among some observers that the push to self-scanning might indicate otherwise.

New initiatives

While costs, margin and profitability are front of mind, as they are at any retailer, WHSmith is perhaps not given sufficient credit for the new opportunities it identifies and pursues.

This week the retailer revealed it will pilot a value greetings card fascia, Cardmarket.

It is the latest in a long line of initiatives ranging from hospital stores to the addition of brands such as online greetings business Funkypigeon.com and Wild Cards and Gifts, an Australian franchise business.

Clarke emphasises Cardmarket is a trial and says: “The card market is stable and high margin, but it’s growing at the value end. We can use our distribution systems and other assets and we can come up with a good, compelling customer proposition.”

In travel too the retailer is overhauling operations, focusing on opportunities such as food-to-go rather than relying on its traditional offer.

Investment in stores

Clarke is pleased with how things are progressing at WHSmith. For him, the business bears no resemblance to the one portrayed on @WHS_Carpet. He points out that 250 floors have been replaced over the past 18 months.

Capital expenditure last year was £32m and this year it will be £38m, which will go on investment in existing stores and technology as well as openings.

“We’ve spent a lot on our stores, both on the high street and in travel. Look at a store like Heathrow T2. We’ve got some spanking stores,” Clarke says.

Retail consultancy Conlumino research director Joseph Robinson thinks WHSmith is doing tshe right things.

He says: “As some of its regular customers would no doubt testify, WHSmith is far from the most glamorous player in UK retail.

“However, its operational strengths and strategic focuses are to be applauded. 

“Primarily an entertainment retailer, faced with a shrinking sector, WHSmith did what many failed to do and bit the bullet.

“It began to diversify, bringing in new product categories and tapping into the travel space.

“In the long run, there will undoubtedly be a need for the retailer to take its product mix and space optimisation learnings and, while retaining its cost and margin control, present a more focused brand proposition.

“Nonetheless, over the coming years it will benefit from significant opportunities available to it in travel and international.”

WHSmith profits surge 9% despite sales fall as it ups cost savings