While consumer confidence is once more on the rise, thanks to a squeeze on disposable incomes this is not necessarily translating into steeply rising sales for high street retailers, many of whom are still making losses though at a lower rate than during the recession. Fortunately, several years of economic turmoil have left a lasting impression and imparted several lessons which allow retailers to make the most of a tricky situation.
This is the case at high street favourite WH Smith, which has seen a rise in profits despite a 5 per cent drop in like for like sales during the year to the 31st of August. The chain managed to outperform City forecasts by recording a climb of 6 per cent in pre-tax profits, bringing the total to £108 million for the 12 month period.
Chief executive Stephen Clarke believes this is due to the widespread cost cutting programme currently being undertaken by the brand, which has seen a huge emphasis being placed on growing margins and building capital to cushion the retailer against further economic instability. It has also brought in tools to help its 615 UK high street stores run more cost efficiently, with energy efficient tills now a major feature across the property portfolio.
Mr Clarke is optimistic that WH Smith is well placed to capitalise as the economy takes further steps towards recovery.
He says; “We continue to deliver on our strategy with a strong performance and good profit growth in both businesses.
“The group remains highly cash generative enabling us to invest in our businesses and in new opportunities, whilst returning cash to shareholders, including a further £50 million share buyback announced today.
“Looking to the year ahead, we continue to plan cautiously in an uncertain environment, however we are a resilient business and are well positioned for continued growth in both the UK and internationally.”
Much of the expansion Mr Clark alluded to will take place overseas, with plans already in place to increase WH Smith’s store portfolio in countries such as Russia, India and Australia. At present, the retailer owns and operates 141 stores outside the UK, with 30 kiosks in China allowing for the growth of its travel business in an emerging market.
Yet within the UK expansion also seems to be an option. Much like high-end fashion retailers, WH Smith has taken advantage of the captive consumer base found in places such as airports, while new openings in stations and hospitals have also proven to be popular.
Furthermore, it has just extended its agreement with the Post Office for a further five years. The retailer already operates 82 concessions within UK stores, yet under the agreement this will extend by 16 branches in the coming months, thus broadening its appeal to consumers nationwide.
Retail analyst Nick Bubb says; “The message is that there is no need to change something that is still delivering the goods, with the PBT outcome of £108 million a tad ahead of expectations and cash generation still enough to finance another useful dividend increase and another £50 million share buyback plan for the new year.”
Do you think WH Smith is a rare example of a retailer managing to thrive despite tough economic conditions, or have most high street brands managed to adapt in a similar way?
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