Setting the scene
The UK high street is changing. Yes, it would be naïve of me to think that I’m giving you any great insight with that statement. Retailers have needed to adapt to meet the changing demands of retailers, as everyone knows. HMV, Waterstones, Oddbins, JJB Sports, All Saints and others- regularly in the news for their financial troubles, mostly as they try to get to grips with the current retail marketplace.
So why has WHSmith pretty much stayed the same as it ever was?
If you look at the stores, besides small changes to product mix, you’d be pretty impressive if you could spot much that’s new. Revenue has been fairly static for the past five years at around £1.3bn, but the real story starts to unravel when you look more closely. WHSmith divided their business some years ago into two core streams: Travel and Retail.
For travel, read ‘WHSmith stores for a captive audience’ – i.e. you buy from them because you don’t have a choice; in airports, motorway service areas and hospitals, if you need the basics that WHSmith provide, there is no competition. Not surprisingly, Travel has been growing in scale rapidly as they sign up partnership deals or make more acquisitions. It’s about half the size of the high street Retail division, yet just as profitable.
So what’s happening to their high street stores? They are being left behind, with revenues down from over £1bn in 2006, declining year on year to £860m now. If you read the Chief Executive’s statement, she talks about a focus on cost savings and margin optimization; not exactly revolutionary stuff. However, she also talks about building authority in core categories, which has got to be worth thinking about. A short walk around any WHSmith store in 2011 doesn’t leave me feeling any sense of their authority.
In fact, any category they trade in does have a competitor who does it better:
Books: who has authority: WHSmith or Waterstones?
Entertainment: WHSmith or HMV?
I’m going to put WHSmith through a mini-version of Strand’s Marketing Audit. Why? Well, after a recent visit to Germany, I noticed there were no German guidebooks for sale in their Heathrow store. A brief discussion about their missed opportunities with some marketing colleagues led to some pretty strong opinions from all that they are missing a trick. Most views of their marketing came across fairly negative. I’d like to consider what I would do in their position. And that’s what our marketing audits are all about: if I managed their marketing, what would I be doing? There’s got to be something that can change these perceptions. I’m going to have a closer look at their high street retail business.
A bit of science
So what’s the main problem that needs a marketing cure? Well, if you look at where they should be devoting their budget, it could be divided up into these areas:
Now it’s easy to discount the areas that don’t need fixing:
Brand: The brand itself is strong. With over 1000 stores, everyone knows who they are and what they sell.
Buzz: A brief look at the social media and this isn’t top of the list of problems to fix.
Customer Acquisition: No issues here either. With 75% of the population visiting one of their stores every year there is no problem here
Profit per visit: Here’s the problem and the main challenge. What do most people buy when they drop in? A newspaper? A magazine? Cigarettes are a declining category and like the other things I mentioned, not particularly profitable. But imagine if everyone buying a newspaper spent an extra pound in store. What an incredible impact that would have on the business! And there you see the challenge. Because if you go about this the wrong way…
Brand Development: This starts to suffer. The perception of the brand isn’t what it once was. To put it another way, the value customers place in the high street retailer starts to slide. And if the brand value drops:
Customer Retention: becomes more of a challenge. Persuading existing customers to shop more regularly with a brand in which they are growing increasingly disillusioned is asking a bit too much from their marketing team.
And there you see what they are up against. More about this later.
Stage One: 360 Degree review
It’s amazing what you can find out when you talk to people about your business. Explode this onto a more exciting scale and why don’t we chat to customers, ex-customers, potential customers, staff and business partners. Well, I didn’t manage to get round all of those groups, but you get the idea. The answers to some of your problems could be waiting in the head of an assistant manager of a remote store in Oxford. They might not be, but it’s well worth asking. In fact, better still, ask someone independent to ask for you. What do you like? What don’t you like? What else would you buy? What opportunities are they missing?
As we’ve found out, an independent team of interviewers can discover some really neat ideas from the retail staff to share with your HQ.
When I asked about WHSmith, comments tended to fall into three categories:
1. Why are they a huge business / with stores everywhere, yet seem so backward/archaic/old-fashioned?
2. Why do they try so hard to sell chocolate?
3. Why do they try to stuff vouchers in our hands/bags that we don’t read?
One person mentioned that they found it rather strange that the current Paul McKenna book promotion next to the counter ‘You can think yourself thin’ didn’t really fit well with the offer of a large bar of chocolate for a pound.
Another said that it was clear that scanning a paper voucher at Point of Sale was clearly in the staff job description, even though no-one in the stores believed it had any value for the business. That was why the customer is rarely handed the voucher; the retail staff believes it is of little value.
Not one person I spoke to had any great ideas for new marketing initiatives, only for how to get rid of the old ones. In fact, it’s worth thinking that if WHSmith gave up trying to sell customers cheap chocolate and the amusing practices with the paper vouchers, then would the brand start to rise in customer’s expectations, to the point that customers trusted them more and started to buy higher value items from them again? Just a thought.
Stage Two: In store review
I went for a walk around a couple of stores, on a weekday and weekend. WHSmith have offers on everything, everywhere.
First impressions? So many offers for chocolate and sweets. Crème Eggs at 64p each or 2 for £1. Is that a good deal? Also a number of 3 for 2 deals and £1 bags. A couple of people I spoke to said that it was beginning to resemble a Poundstore, and these offers support that view.
There were a number of offers on books too- half price fiction, Buy one get one free and so on. The partnership with the Galaxy Richard & Judy Book Club was a good idea and was displayed well. The book section also had a ‘local interest’ area- with maps, guidebooks and British local histories.
The DVD section was tiny – and products offered were not particularly good value, so that fits well with WHSmith’s view that entertainment sales are declining, and currently represent less than five percent of revenue. Perhaps this caters for impulse purchases and older shoppers who are less comfortable purchasing from lively entertainment stores.
– There were packets of Lego figurines everywhere, on the counter and stacked high behind it. These must either carry an incredible gross profit margin or sell extremely well.
– There was a Store-in-store branded with the Gadget Shop, which WHSmith bought in 2010. This looked great and was the busiest area of the shop. (note for HMV- perhaps a partnership with someone like Menkind to provide a similar mix of electronic gadgets and other novelties could be good for business)
– We’re all familiar with Tesco’s range of financial services products – credit cards, insurance products and bank accounts. Rather than launch their own, WHSmith have partnered with National Savings & Investments to promote their services. In the store I was in, the location for all these leaflets seemed rather odd and I think this probably only makes real sense in the stores that have a Post Office counter.
– There was a huge display of magazine subscription packs and experience days. These took up a large footprint in store, so it would be interesting to learn if customers are buying growing numbers of these as gifts.
The stationery sections looked rather lifeless. When you look at a brand like Paperchase, you really see how to sell stationery well. WHSmith might have sold Paperchase in 1996, but they can still learn from them by simply doing what I did and have a wander…WHSmith have now bought the ‘Funky Pigeon’ giftcard brand although I couldn’t see much evidence of it.
When I left the store, I was charged £5 less for the book I was buying than the price advertised. I can only assume the voucher I was given was redeemed immediately. This was rather odd as I was expected to pay full price until the last minute discount. And so on to the vouchers. These are now part of every WHSmith shopping experience; a strange ritual where the staff make a vague attempt to pass the vouchers your way, hoping you won’t notice what you have taken. I was handed one (£5 off when you spend £12 or more on Stationery), but then a further two were scanned by the cashier and left on the counter:
– £15 off when you spend £65 at Ocado
– £5 off any book over £10.
By the way, I tried Amazon’s barcode scanner app while I was in the store and I found I could save a further £4 on WHSmith’s offer price, if I was prepared to wait for its arrival.
The cashier let out a loud sigh as she processed my payment, engaged in a conversation about breaks and cover throughout. There was no eye contact; she was more interested in the store manager at the time.
So what are WHSmith doing to their once-respected brand? Are all the offers that are displayed in store and handed out at point of sale really reinforcing their position of ‘building authority in core categories’? Customers probably know that they are coming back to the store anyway, so are these vouchers really going to drive an extra visit, or encourage me to spend more? There is a risk that they have made no difference and are simply impacting profit margins.
As I said earlier, the short-term gains from any additional revenue could do longer term damage for customers planning to make higher value purchases. In a nutshell, I suppose the best way of putting this is- ‘What is the maximum cost of an item you would buy from a Poundstore? Would you buy a premium item on your next visit? I didn’t think so.
When we launch a new loyalty programme for a retailer, we always talk about the value the retail staff have. It is truly astonishing what an impact an engaged workforce can have on income. Does WHSmith’s retail staff really believe in the brand? Is there a sense of shame brought about by the eponymous vouchers? In a more formal marketing audit (i.e. when I’ve been asked!) we would have the opportunity to speak to a broad range of staff in workshops to understand their motivation better.
Where the WHSmith brand seems to work best is where it fades into the background, and a Partner brand (such as the Gadget Shop, Funky Pigeon or the Richard & Judy Book Club) takes the lead.
So with every major retailer, the question of what to do with loyalty comes about. WHSmith used to have a huge loyalty programme, called the Club Card, which ended in 2007 after a ten year run, having had a midlife overhall in 2003. This programme was vast. I believe, at one point, it was the most widely subscribed programme in the UK, after Tesco’s Clubcard and Nectar.
Why was it pulled? Well they are not to blame. Many (including WHSmith themselves) said at the time, customers were confused by the range of benefits and the reward points structure. I don’t agree.
It’s really difficult to give meaningful rewards to customers when the Spend Per Visit is so low. 3% of a £3.00 spend is less than 10p, and would a customer really bother to collect these rewards to perhaps, one day, eventually earn £1 off a future purchase. Loyalty at this level needs something unique in order to work and WHSmith were offering the generic ‘Point for a £1’ programme, which has a questionable impact on any business.
So utilization rates were tiny. I’ve run loyalty programmes where 1 in 3 customers in store are carrying a loyalty card. With ClubCard, it was rumoured to be less than 1 in 100, so it’s not surprising its days were numbered.
WHSmith have replaced ClubCard with their Privilege Club, a range of vouchers (yes there’s definitely a pattern forming) with a total of £20 off provided at first and then £10 per month. The latest Privilege Club offer I saw was £5 off when £15 is spent on stationery. I got a better offer in store from doing nothing! I question what the privilege is here for their best customers…
A quick search online led me to a presentation from 2009 that said 320k members signed up and 750k were transferred from ClubCard. That’s not very many. To put it in perspective, WH Smith has over 1000 stores and we have programmes with less than 100 stores with more members. The presentation I saw was inviting partners to sponsor an email survey to members – one partner in each sector- as a revenue generator. Once again, this sounds to me like a short term cash gain without consideration for the long-term brand devaluation…
So we come to the score. Typically in Strand’s marketing audits, we score the following marketing areas:
- Marketing Performance
- Brand Awareness
Here’s how we’ve ranked WHSmith:
What’s the answer?
Phew. There’s so much to talk about. That can often be the challenge with marketing audits; too many solutions to consider. I’ve had some good input from other retail marketers too and I’ll share some of the highlights. We divide our solutions into ‘Quick Wins’, which should be low-cost or, better still, no-cost and into Strategic Recommendations, which are more extensive solutions for the future.
– New offer structure: There has got to be a better way to communicate with customers at point of sale. Scanning paper vouchers might be vaguely useful from a CRM perspective to track issue versus redemption, but even with our passion for CRM , we’d give this a miss. We’d look at more creative solutions, like a tear-off voucher on every bookmark and double the benefit given for a review posted online.
– Upsell, relevantly. If I’ve bought an electronic product, would I like batteries? If I’ve bought stationery, did I know for an extra pound, I can have a free notepad? It’s meaningful relevant promotion that customers can understand and respect.
– What’s the customer journey? I’ve bought and I have a series of offers, but if I was given the chance to build a relationship with my local store, I probably would. If the Manager or the store team had something to share, whether review of books on the local area, or even events, we’d be interested.
– Simplify the rules: If you’re going to offer £5 off a £10 book, make sure the staff know, it’s a reward for an incremental visit, not for those customers who have turned up anyway and are already willing to buy at full price. Better still; let’s have a short window to the expiry date so we know the next visit is an extra one.
– Sort out the visual merchandising: A quick review and refresh could stop this looking like a poundstore. Any marketer (Mary Portas?) could teach you about the downward spiral of positioning yourself too cheaply.
– Do the Funky Pigeon: You’ve bought the brand, so this would be a great way to refresh your image instore, by introducing some life, colour, energy… Well- you get the picture. We believe they are half way there and have the easy part to finish- execution.
– Inspect-the Gadget: The Gadget Shop brand could be great for raising the ATV without damaging the brand. It could also increase the ‘time in store’ and this browsability factor might lead to further impulse purchases. But explore the sales data and see what impact it is having where it features vs the stores that don’t carry the stock- always good to have a control group in an experiment like this!
– Staff motivation and engagement.- There is a genuine opportunity to build a relationship with the customer (see Pret, Gamestation, HMV and even RBS these days for this) For many UK consumer, a visit to WHSmith can be a daily occurence. If we were marketing the business, we would consider working harder to explain the vouchers to staff, and if continuing to issue them, we would focus on getting their buy-in. An incentive programme with personality, managed effectively, could be key to the success of these promotions. We put something similar in place a couple of years ago and the response rate doubled, and maintained the same levels for over twelve months. That’s right; focusing on the staff can have a much greater impact than changing the promotion for customers. We’d also like to see staff book reviews; these work well for Waterstones and once the process has been established can quickly become a core part of the in-store collateral.
– Reengineer the offering through the high street stores. The travel division works twice as well as the high street one. Oh dear. We could rephrase that by saying that WHSmith performs best when it doesn’t have any competition. I was going to say continue to focus on the captive markets, but I believe they are doing that already and it doesn’t seem right to ignore the high street stores. Improve the high street stores first and some of these improvements could easily be transferred to the travel stores.
– Market smarter. I buy a couple of magazines every month personally and subscribe to many more for the business. A targeted offer might persuade me to buy more.
– Consider franchising. The feedback we’ve seen where a visit to some stores is relatively impersonal could be solved by the introduction of franchises. Even on a smaller scale, giving the managers the opportunity to experience ownership could be just the ticket to create stores with more personality. Local owner/managers might also come with a solid understanding of merchandising the store to take account of local idiosyncrasies.
– Go local: Alongside the franchise model, I would boast the local aspects within a brand refresh too. Would most customers prefer to buy from their local newsagent, benefitting from the support of a large group such as WHSmith? It could be worth asking them. I’d also have all communications (mostly email) from the store manager, not from the central marketing department, and later on, give managers the opportunity to provide some local editorial content too.
– The Hub. Perhaps the boldest of our recommendations comes from the contradiction between WHSmith’s strategy of ‘building authority in core categories’ and the reality of where the brand is positioned today. If you look at their core categories, being books, stationery and magazines, it’s easy to think of a competitor with a stronger proposition. Go beyond that into impulse products and it’s easy to think of a few more.
Given the successful integration of the Gadget Shop product range and long before that, the Post Office counters, we’d go further to develop WHSmith into a trusted local hub for stronger brands in each category. With Waterstones providing the book department, and Ryman stocking the stationery WH Smith becomes the marketplace for category experts. There are some fantastic traditional confectionery stores beginning to emerge too. We’d even find space for branded coffee shops to increase dwell time, and that’s part of the cure.
With customers spending more time in the stores, they should spend more every time they visit, and if that happens chocolate need no longer be the solution to all problems. Well maybe just not this time.
WH Smith Interim Results presentation 2011
Presentation to loyalty partners: