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How long can a business remain “successful” in the face of adverse customer reaction?

When the crash comes it’s usually big and painful – ask Tesco. Will W H Smith be the next company to feel the pain of being disenfranchised by its customers?

Writing in last week’s Retail Week, City Insider George McDonald talked of W H Smith’s compound annual earnings growth of 8.6%. Share prices are up over 300% compared to mid 2007. “While W H Smiths in-store standards and the seemingly obligatory offer of a supersize Toblerone to every customer draw condemnation from industry observers Smith’s remain the masters of store profitability. With sales in the High Street stores down 4% and travel boasting growth of 8%, exhaustive space analysis supports their drive to ensure the maximum return on every square metre.”

Customer complaints about the High Street stores are legion, ranging from being unclear about what the brand now stands for to comparing the stores to dark caverns crammed full of shelving and merchandise, difficult to navigate, uninviting and expensive. I myself, in a previous article railed against W H Smith ubiquitous use of self-checkout and in an airport location, the need to show my boarding pass to a disinterested scanner, transforming my otherwise poor experience into “appalling”.  It’s now emerged that the need to show my boarding pass is nothing to do with security and everything to do with W H Smith claiming back VAT and not passing it on to me the customer (estimated by the Independent at £50m).

In my opinion, in terms of look and feel, the High Street stores compare unfavourably with the average charity shop.

In Fred Reichheld’s, “The Ultimate Question 2.0” (Harvard Business Review)  he talks about (I paraphrase)  enterprises achieving “bad profits” by ignoring the customer experience metric and salami slicing their proposition just faster than they lose customers. By definition, this is a business strategy that has a limited shelf life – one day you won’t have enough customers left to run a business.

The hairline cracks started to appear in Tesco proposition many years ago. As a supplier to the organisation it was more apparent than it was at a retail level. Unfortunately, as the business became more successful I felt that their curiosity and drive to improve their customer proposition was replaced by a defensive arrogance, The drive to deliver value was replaced by an obsession with reducing costs. As a consequence quality in everything they did and sold was also driven down.

The turning point in their public reputation was triggered by a financial crisis caused by the manipulation of “supplier bonus payments”, i.e. additional discounts extracted from suppliers and incorrectly accounted for. Once this story had emerged customers voted with their feet.

The current management team are having to go back to first principles of creating service in store in order to overcome their competitive threat, to a deliver a differentiated product in a price conscious market, the right way, by providing what customers want.

So what about W H Smith? It’s been a well-loved brand on the High Street for many generations. The very first store opened in 1792. Let’s face it, most of us who grew up in the UK probably spent some of our first pocket money in there.  It’s clear that the travel business serves a legitimate niche providing a last minute watering hole for in-flight confectionery, stationery and written entertainment and their growth in this sector has been driven by opening more stores in more locations whilst maintaining a relevant offer to the travelling public. Not exactly rocket science.

It feels to me, though, as if the brand has become “hollowed out”. What does it stand for? What is its unique reason to be? Why should, we the customers, love it?

I don’t feel any of Tesco’s former arrogance in W H Smith’s approach to the market but more of a sort of quiet desperation as they cling tightly on to their role in the high street by pushing hard to increase the basket size of their remaining customers.

The focus on extracting every ounce of profit out of the store square footage might be a rational one but it is insufficient to sustain the business. It simply doesn’t address the emotional needs of customers. There is nothing about these stores to get excited about and make me want to go back. Ever.

The brand and value proposition need to be reimagined and re-defined and soon. Profitability needs to flow from sustained customer preference, customers who come back because they enjoy the experience and want to repeat it.