Category Archives: Retail

W H Smith and Woolworths: a cautionary tale

Tired stores, confusion over what the shops sell, high prices. No, it’s not Woolworths, its W H Smith’s.

W H Smith currently occupy the position that Woolworths held maybe ten years before its demise. The Smith’s stores desperately need a makeover. Too many of the stores are dirty and untidy, and reminiscent of a jumble sale.

Smith’s actually did quite well from the demise of Woolworths. It likely picked up some of the stationery, toys and confectionery business from its rival. But it’s struggling in the face of intense competition on the high street, online, and from the supermarkets.

The travel concessions are actually pretty good. They offer the traveller all that he or she needs for a journey: books, chocolate, magazines. But I don’t see much reason to visit a high street Smith’s. Waterstones do books better, Amazon do books cheaper. Okay, their magazine range is good. I might consider them for cards if there isn’t a Clinton’s nearby. Their stationery is quite good, but nothing fancy, and is overpriced. And why do I need stationery? People don’t really buy stationery that often, do they? It’s no surprise to read that the travel concessions are keeping the entire business afloat.

http://www.retail-week.com/companies/whsmith/whsmith-trials-franchising-to-expand-its-store-network/5050816.article

Smith’s seem to sell a lot of children’s toys and games these days. It’s just a confusing premise. Why does a newsagents sell toys? I don’t think W H Smith why I need to buy a toy. One gets the impression that they’re just trying to fill some of those massive stores.

The whole situation reminds me of Woolworths. Both are (were) brands with enormous recognition and presence on the high street. But people found fewer and fewer reasons to pop in. Then they got embarrassed to be seen in one. Then Woolworths closed.

I read that Smith’s are trialling franchising their brand to newsagents. Some trialists report a 20 percent rise in sales as a result. Smith’s main problem is their store size. They’d be better off with more small locations that trade on their convenience. Smaller stores would result in lower rents.

Central London rentals

Okay, so visited London for about a week. One thing really jumped out at me. In the provinces, Costa Coffee is by far the largest coffee shop chain, especially outside of the large cities. In London, I was astounded by the number of Starbucks in prime real estate locations. Costa takes smaller premises than Starbucks, on less prime real estate. And with the recent tax avoidance scandal that Starbucks UK was involved in, I can really believe that they don’t make any profit in the UK. I predicted that this was due to the high rentals that they were paying in central London. Turns out, I was right. I later found this from their website:

during our rapid expansion phase we positioned a high proportion of our efforts on prime, high street locations, and in particular in Central London where the cost of leasing is the highest in the UK. The result has been a group of stores that do not make money.

Yes, Starbucks are often full, but many of its customers seem to buy a £1.55 filter coffee and linger there half the day using the free WiFi to work. Costa avoided paying silly money for these sites because they are owned by Whitbread, masters of the UK property market. Whitbread’s knowledge of the market stems from decades of owning pubs, hotels and restaurants in the UK.

Recently, Starbucks has been closing down some of these unprofitable London sites, including three on Oxford Street. A recent report stated that the company was looking to close down 16 central London sites.

A company that avoided paying silly prices for central London sites was bakery chain Greggs. They have a mere handful of sites in the area. And it’s not as if they’re under-represented in outer London. Upmarket Wimbledon high street has two Greggs for example.

I find the Starbucks unprofitability case interesting, because I think people assume that when a brand is brash, bold, highly visible and obviously splashing the cash around, that it is successful. Another instance of this is the many incarnations of the Virgin brand: yes, there are some successful Virgin brands, but look at the high profile failures like Virgin Cola, Brides and Vodka.

Greggs in central London

Gregg’s is nationwide British bakery chain. Why are there so few Greggs outlets in central London?

There’s certainly no shortage of commuters looking for lunch, or tourists looking for a quick snack. McDonald’s, EAT, Pret and Starbucks all maintain a strong presence.

Living in the provinces, I have always been impressed by the sheer quantity of Greggs outlets. In central Leeds and Newcastle, large cities, one never need be more than one minute’s walk away from a steak bake or sausage roll.

So why so few outlets in central London? Yes, the chain has northern origins, but that didn’t hinder McDonald’s or Starbucks, with origins even further afield.

The chain is essentially a fast food retailer: largely calorific products served quickly and cheaply. And Burger King, KFC and McDonald’s are very successful in the capital. People clearly aren’t afraid of unhealthy food.

Is the rent too high to make the low cost retailer profitable? Greggs outlets have very limited seating, so I hardly see how this could be an insurmountable problem. In Bread: The Story of Greggs, Ian Gregg, the former chairman of the company, states that before the 2008 economic crash, rivals were overpaying for sites in central London. But if that is indeed the case, then what has prevented the chain from expanding in the area since the economic crash, now that rents are lower?

Lets look at the individual USPs of its rivals. McDonald’s offers seating, Starbucks offers comfortable surroundings, Pret offers speciality coffee. The Greggs proposition can actually be fulfilled through small supermarket concessions. In actuality, many small supermarkets in central London already offer a hot pasty/sausage roll selection. How does Greggs improve on their rival? Well the Greggs product will be fresher, as they bake their food throughout the day. So freshness, convenience and price are the USPs that need to be drawn upon. Greggs also needs to smarten up its existing central London outlets in order to place distance between itself and its reputation as downmarket junk food.