W H Smith Group PLC
W H Smith Group PLC
7 Holbein Place
London SWIW 8NR
(071) 730 1200
Fax: (071) 730 1200 extension 5563
Incorporated: 1949 as W H Smith & Son (Holdings) Ltd.
Sales: £2.13 billion (US$3.98 billion)
Stock Exchange: London
W H Smith Group PLC is one of Britain’s oldest and best-known retailing companies. The group’s activities in book, newspaper and stationery distribution and retailing over two centuries have made it a familiar part of daily commercial activity for British consumers. From its base in this market, the group has diversified into a range of other activities. In addition to being the United Kingdom’s largest seller of books, newspapers, magazines, and stationery, W H Smith is now a strong force in the recorded music and video markets, a leading distributor of office equipment, and has a half share in Do It All Ltd., a leading do-it-yourself chain. Along with its commanding position in U.K. markets, the group has an extensive chain of outlets in the United States.
The W H Smith group had its origins in a small “newswalk,” or newspaper agency, in Little Grosvenor Street, London, opened by Henry Walton Smith and his wife, Anna, in 1792. Smith died only a few months later, and Anna ran the business by herself until her death in 1816, when her two sons, Henry Edward and William Henry, began trading as H & W Smith. In 1818 they moved to Duke Street, Mayfair, and by 1820 were in a position to open a second shop in the Strand, London. William Henry became the driving force in the business, and in 1828 the firm became known as W H Smith.
The opening of the business coincided with dramatic economic and social changes in Britain. The industrial revolution and a sharp acceleration in the growth of London changed the way the English lived; among the changes was the increase in importance of newspapers and journals. These catered to a new demand for keeping track of fast-moving economic and political developments and the turbulent international politics of the time, and provided a medium for advertising, which was becoming increasingly important as the English economic structure changed and new kinds of enterprises emerged. Another effect of the economic changes was the construction of an improved network of roads, allowing comparatively swift transport by stronger, safer horse-drawn coaches. William Henry Smith spotted the opportunities offered by these developments and changed the focus of his business from simply retailing publications to distributing them. He built up a fleet of light coaches and fast horses and began carrying papers from London along the new roads to stagecoach stops in the country, allowing rural readers access to metropolitan newspapers more quickly than ever before.
It was another product of the industrial revolution—the railway—that allowed the firm to grow dramatically into the leading newspaper seller in the United Kingdom. The railway network spread quickly across the country during the 1830s and 1840s, and William Henry Smith’s son, William Henry Smith II, recognized the potential of the new system for newspaper distribution. The younger Smith had reluctantly abandoned his plans to become a clergyman and agreed to join the business in 1842, at the age of 17, and soon showed himself to be as perceptive a businessman as his father. After being made a partner in 1846, giving the company the name W H Smith & Son, he took the opportunity offered when the London & North-Western Railway (LNWR) invited tenders for the sole bookstall rights on its lines. W H Smith & Son opened its first railway bookstall at Euston station, London, in 1848, signed a similar deal with the Midland Railway two weeks later, and soon won contracts with other railway companies.
Control of a monopoly retail operation at the heart of the mass transport system gave the company a perfect position from which to benefit from the booming British economy of the late 19th century. The volume of trade was big enough by 1853 for the firm to buy its first news wholesaling warehouse in Birmingham, the first in a large network of warehouses developed over the next few years. In 1849 William Henry Smith II broadened the company’s base by creating a book department, and in 1851 he signed the first contract to handle advertising rights at railway stations with the LNWR, beginning an outgrowth of the business that developed swiftly. W H Smith & Son’s railway bookstalls and the advertising space they sold made the company a ubiquitous presence in Britain throughout the second half of the 19th century, and created its position as one of Britain’s retailing giants.
The success of the firm allowed William Henry Smith II to enter politics. After becoming a member of parliament in 1868, he retired from active partnership in the company and became in turn Parliamentary Secretary to the Treasury, First Lord of the Admiralty, Secretary for War, Irish Secretary, First Lord of the Treasury, and Leader of the House of Commons. His public prominence and attitudes prompted the humorous magazine Punch to nickname him “Old Morality.” On his death in 1891, his widow was made Viscountess Hambleden and his 23-year-old son, Frederick, who later became the second Viscount Hambleden, became head of the company.
The company continued to develop steadily under Viscount Hambleden—opening a shop in Paris in 1903, followed in 1920 by another in Brussels, Belgium, and a bookbinding works in 1904—until its core business was threatened by a crisis in 1905. When contracts for the 200 bookstalls on the Great Western and LNWR lines ran out at the end of that year, the railway companies demanded higher rents from W H Smith & Son. The company decided that it could not afford the new prices and decided to deal with the loss of the railway bookstall monopoly by opening new shops near the stations, on the station approaches wherever possible. The replacement program succeeded, and the company managed to retain its sales despite the loss of the business upon which it had been founded. The opening of the new shops turned W H Smith & Son’s operations into a more conventional newspaper, book, and stationery retail chain, and became the basis of its activities for most of the 20th century.
Viscount Hambleden died in 1928 and was succeeded as head of the company by his son, the third Viscount Hambleden. The need to pay death duties prompted the transformation of the firm into a private limited liability company in 1929. A similar process took place after the death of the third Viscount in 1948; a public holding company, W H Smith & Son (Holdings) Ltd., was formed in 1949 to buy up all the share capital, which had been held by Viscount Hambleden, and issue shares publicly.
During the 1950s, the company began to branch out beyond its traditional business under the first chairman of the public company, David Smith, the third viscount’s brother. During this decade W H Smith made its first major move into another country, opening several branches in Canada, first in Toronto and later in Ottawa and Montreal. The company also diversified within the United Kingdom by expanding into the specialty book market in 1953 with the acquisition of the Bowes and Bowes group of bookshops, which included City Centre Bookshops, Truslove & Hanson, and Sherratt & Hughes. The company also broadened its activities by adding recorded music to its shelves. The continuing growth in sales prompted the company to reorganize its retail distribution network, transferring the center from Lambeth in south London to a custom-built warehouse in Wiltshire. In the same period, one of the last vestiges of the old railway-based retail network ended when, in 1972, the company decided not to renew its contract for 23 main bookstalls and 63 kiosks in London underground stations after operating there for 70 years.
In 1973, under a new chairman, Charles Troughton, the company launched a radical departure from its core business when it joined in a consortium bidding to take over the travel agency company Thomas Cook. The bid failed, but W H Smith pushed ahead with its plans to enter the travel agency business, opening a chain of agencies operating from within its existing shops. The company undertook a more ambitious move to diversify under the next chairman, Peter Bennett, when it moved into the do-it-yourself hardware market in 1979, paying £12 million for the LCP Homecentres chain, which it renamed Do It All, and expanding the chain. This was the first significant step away from the company’s traditional businesses and existing shops, and it set the tone for the wave of diversification that was to follow in the 1980s under Simon Hornby, who was appointed chairman in 1982.
Following the move into hardware retailing, W H Smith’s next steps to broaden its base took it into the television industry. Aiming to take advantage of the opportunities arising from cable and satellite television in Europe, in 1983 the group established W H Smith Television, a subsidiary designed to supply the industry with programs and provide services to the program industry. The group’s involvement in television deepened the following year, when it bought a 15% stake in a cable television channel, Screen Sport, and paid £8.5 million for a 29.9% slice of Yorkshire Television. In 1985 the company added to these acquisitions by taking a stake in British Cable Programmes, a move that the Financial Times said “reinforces the company’s emergence as the most significant investor in cable TV programming, after Thorn EMI.” Later that year the company launched a satellite-delivered cable television channel marketed mainly toward women.
W H Smith also made a major move into the United States in 1985, paying US$65 million for Elson, a chain of gift shops with 189 outlets in hotels, airports, office blocks and railway stations throughout the country. The purchase was W H Smith’s second attempt to break into the U.S. market, following the establishment in 1979 of an operation publishing and wholesaling English books, which took heavy losses. Hornby assured financial analysts that the earlier effort had been badly managed and that the latest entry would be very different.
In 1985 the company also increased its involvement in the recorded music industry, paying about £5 million for Music Market, a chain of 20 music shops. This move was a precursor to a bigger acquisition in the music market the following year, when the company paid the share equivalent of £46 million for the Our Price Music Ltd. record shop chain, bringing another 130 shops in London and southeast England into the group. A month later W H Smith expanded its stationery retailing activities by buying 75% of a greeting card and stationery business, Paperchase. The group also took the next step in its travel industry plans in 1986 by opening 100 freestanding travel agencies. The rash of acquisitions continued in 1987 with the group buying 32 retail outlets in Hawaii, bringing its total number of U.S. outlets to 308. It expanded its travel operations by paying £5.7 million for 32 travel agencies owned by the Ian Allan Group and bought a controlling interest in a television and video production company, Molinaire Visions.
However, as W H Smith diversified swiftly into new businesses, it received a serious blow to its oldest operation. When Rupert Murdoch’s News International moved production of its British national newspapers into its new nonunion plant at Wapping in 1986, it appointed the Australian-based transport group TNT Ltd. as its transport contractor, ending W H Smith’s 190-year-old role as distributor of The Times and The Sunday Times. With the papers delivered by road, the group’s business delivering them from railway stations to shops and newsstands was redundant. In late 1987, TNT and News International signed an agreement consolidating TNT’s move into the wholesale newspaper distribution market. This change cost W H Smith an estimated £40 million in annual sales. The group recovered most of these losses, however, in 1988 when it won wholesale distribution contracts from Express Newspapers, Mail Newspapers, and Mirror Group Newspapers worth an estimated £25 million. In the same year, the company changed its name from W H Smith & Son (Holdings) Ltd. to W H Smith Group PLC.
The problems in newspaper distribution did not stop W H Smith from pushing ahead with new areas of activity during 1988. In addition to its newspaper and book distribution divisions, the company created a third distribution area by moving into the commercial stationery supplies market, buying two stationery suppliers, Pentagon and Satex. It added to its recorded music operations by paying £23 million to Virgin Group for 67 of its smaller music shops and 7 sites alloted to new shops. In a deal worth about £40 million, the group also leased two transponders—radio or radar devices which, upon receiving a signal, transmit a signal of their own—from the Luxembourg television satellite, Astra, to transmit a sports channel in which it was the major shareholder, as well as reinforcing its core business by buying a chain of 21 news agencies from Next. At the same time, the group rationalized its book operations by selling its 50% share in the U.K.’s largest book club, Book Club Associates, to joint owner Bertelsmann, the West German publishing group, for £60 million.
The breadth of the expansion during the 1980s left the group somewhat unwieldy, and in 1989 management began to dispose of a number of businesses, notably among its North American operations. The most prominent of these was the sale of the group’s Canadian subsidiary, W H Smith Canada Ltd., which had been operating for nearly 40 years. The trigger for the sale was an order from Canada’s government for the group to sell 49% of the Canadian subsidiary to domestic investors to ensure a high level of Canadian ownership in the book industry. The company responded by pulling out of Canada completely, selling its entire 86.5% stake in the Canadian operation for about C$50 million. The sale included 133 W H Smith bookshops, 82 Classic Bookshops, 91 card shops, and a wholesaler of foreign newspapers and magazines, Gordon & Gotch. As part of a strategy to focus on retailing operations in the United Kingdom and United States, in 1989 the group also sold its U.S. wholesale news division for US$30 million, shortly after selling its U.S. publishing interests to Penguin Books U.S.A., a subsidiary of Pearson PLC. The company reduced its activity in Hawaii by selling a string of 24 shops, and 14 of W H Smith Travel’s outlets were also closed.
The company had meanwhile increased its involvement in the U.K. book retailing industry by buying the Waterstone chain of 31 bookshops, the second largest independent chain in the country. The deal raised W H Smith’s share of the U.K. book market from about 17% to 20%. The company merged the newly acquired shops with its existing subsidiary of 47 bookshops, Sherratt & Hughes. The commercial stationery arm was enlarged by the purchase of Sandhurst Marketing and Cartwright Brice, while the group also bought the remaining 48.9% of Molinaire Visions, which was experiencing problems. The company reorganized its noncore operations in 1990 by merging its Do It All chain of do-it-yourself hardware shops with Payless, a similar chain owned by the pharmaceutical retailing company Boots. W H Smith owned 50% of the new operation, which retained the Do It All name, and was expected to have annual sales of £550 million to £575 million. The company also extended its involvement in the U.S. recorded music market when it paid US$23 million for a chain of 49 record shops in Pennsylvania, which it integrated with Wee Three, its existing U.S. chain of 36 music shops.
In 1991 the group’s new operations in diverse markets began to appear uncertain, partly because of the impact of the recession in the United Kingdom that began toward the end of 1990. In January the company announced that profits in the previous six months had fallen by 7%, and as the year progressed, analysts predicted that profits would remain static. After spending an estimated £435 million to fund acquisitions and organic growth over the previous years, the company announced in May a major restructuring of its operations, including the sale of some of its largest noncore businesses and a refocusing on the traditional retail operations. As the U.K. financial journal Investor’s Chronicle put it, the forays into satellite television, do-it-yourself retailing, and travel had failed. In view of the unexpectedly slow progress of the cable and satellite television market, the company announced the sale of its money-losing satellite television business, W H Smith TV, which had already absorbed £80 million of the group’s money and was still believed to be two years away from breaking even. A consortium that included the French television company Canal+; the U.S. communications company Capital Cities/ABC; and the French water company Compagnie Generale des Eaux, paid £65 million for the television subsidiary. W H Smith also announced in 1991 the sale of its travel agency business and launched its first rights share issue, aimed at attracting £147 million to finance a three-year expansion program in its core businesses and help reduce a £170 million debt left over from the company’s previous rash of acquisitions.
The ambitious acquisition program of the 1980s left the W H Smith Group with a number of problems. However, the company’s core business of selling newspapers, books, and stationery remains healthy, as do its operations in the recorded music market. With the group selling an estimated 24% of all books and similiar proportions of records and videos in the United Kingdom, it remains in a prime position.
W H Smith Ltd.; W H Smith Do It All Ltd.; Our Price Music Ltd.; Waterstone Investments Ltd. (66.8%); W H Smith Group (USA) Ltd.; Pentagon Group Ltd.; Satex Group PLC; Sandhurst Marketing PLC; Cart-wright Brice Holdings Ltd.; W H Smith Amsterdam BV Netherlands; W H Smith (Belgium) SA; W H Smith SA (France).
Hammond, Lawrence, W H Smith: A Story That Began in 1792, London, W H Smith Ltd, 1979; Wilson, Charles, First With the News: The History of W H Smith 1792-1972, London, Jonathan Cape, 1985.