In late January, the 233-year-old UK retail group WHSmith officially raised the for-sale sign over the door of its retail store chain and confirmed that it was “exploring potential strategic options for this profitable and cash generative part of the group, including a possible sale.” It has since attracted a number of suitors to run the 500-store business, including Doug Putman, the billionaire Canadian record label boss who previously rescued music and entertainment HMV from bankruptcy in 2019.

With WHSmith’s travel business accounting for 75 percent of the company’s revenue of $225 million and 85 percent of trading profit, it’s little wonder that management would like to focus on its expansion.

Putman has been joined by several other potential suitors including Apollo-backed Bensons for Beds owner Alteri and Hobbycraft owner Modella Capital, whose executives have previously been involved in specialty retailers including Paperchase and Tie Rack. WHSmith is keen to wrap up a deal during this spring, but just what will a buyer actually be purchasing and what should they do with the real estate? Is it the end of a two-century-old icon?

A Tale of Two Retailers

The first thing to be clear about is that the modern WHSmith has evolved into two very different businesses. It has pivoted heavily toward travel retail over recent years, with the company operating under multiple brands in airports around the world, including a significant presence in the U.S. In all, it has become a 1,200-strong travel retail store operation at airports, rail stations and hospitals. That division has become highly successful and the current management wants to retain that business and concentrate its efforts on it with no distractions.

The distraction is currently London-listed WHSmith’s other arm, its UK retail stores. It is the epitome of a historic retail brand: WHSmith’s first store was opened in 1792 by Henry Walton Smith and his wife Anna in Little Grosvenor Street, London and the company opened the first ever travel retail store in Euston railway station in London in 1848.

The retail store part of the business specializes in selling a range of items from greeting cards and stationery to books and magazines. While it offers the convenience of everyday and gifting staples in one place, its merchandise mix offers nothing unique that cannot be bought elsewhere or online. So, its 200-year-old survival is, if anything, something of an achievement given the collapse of so many other general retailers and the fierce competition across its core categories.

By the Numbers

WHSmith’s retail stores recorded flat operating profits of just over $40 million last year, and the combined group has a market capitalization of more than $1.9 billion, with its stock price up about 7 percent since the announcement but still off about 4 percent over the past 12 months. That is undoubtedly being held back by its retail store operations.

With WHSmith’s travel business accounting for 75 percent of the company’s revenue of $225 million and 85 percent of trading profit, so it’s little wonder that the management would like to focus on its expansion. “Over the past decade, WHSmith has become a focused global travel retailer. The group’s travel business has over 1,200 stores across 32 countries, and three-quarters of the group’s revenue and 85 percent of its trading profit comes from the travel business,” the company said in a statement addressing speculation over its future.

Store Sell-Off Potential

Its traditional business might not be setting records, but it is still profitable, and it has been optimizing its store real estate. It’s planning to close 15 of its 500 stores as part of a pre-planned rationalization following the shuttering of a similar number last year. Buyers are expected to pay as much as $125 million. Assets include the Richard & Judy Bookclub brand (a popular book recommendation club fronted by two TV presenters), while 200 of the physical sites include a footfall-driving large post office, plus the chain has the rights to distribute Toys R Us products in the U.K.

In terms of WHSmith retail properties, most stores planned for closure have prime locations, which means they could be packaged and sold in parcels to other retailers such as Marks & Spencer, which is looking for new locations to expand its popular food-only outlets. However, Jonathan Pritchard, a retail analyst at investment bank Peel Hunt states that if downsizing WHSmith was the likely route to a more robust business, the retailer would have already made that move. “They have been doing a brilliant job with the asset,” he said. “The stores are not necessarily underinvested but (are) on high streets where footfall is in decline.”

Bankers at Greenhill have been appointed to run the sale process for the retail store arm of the business with a deal expected in the coming months. Currently run by chief executive Carl Cowling, the disposal of its retail stores would leave him and his management team to focus on a pure-play travel retail company in a move likely to be welcomed by investors.

The retained business would also include shops in hospitals, a niche which is growing rapidly, with 145 stores in 100 hospitals across the U.K., and potential for openings in 200 additional sites, WHSmith said in its last set of results in November.

Across the Pond

It is the U.S. where WHSmith’s international travel business espies growth. In North America, revenue for the 21-week period to 1.25 was up 6 percent compared with the prior year on a constant currency basis, and up 3 percent on a same-store basis. Its Travel Essentials business, which is the largest and fastest-growing part of the North American division, saw total revenue up 20 percent and up 7 percent on a same-store basis, compared with the prior year.

Its travel business actually encompasses more than just international and domestic airport retail. With over 640 stores internationally in 30 countries outside the U.K., WHSmith North America operates over half of those. The company has businesses across 28 countries in Europe, Asia Pacific, the Middle East and India.

WHSmith’s acquisition of Marshall Retail Group (MRG) in 2019 accelerated growth in the U.S., with banners including WHSmith, MRG, and InMotion targeted at locations such as resorts (MRG has stores across Las Vegas, for example), bus stations, universities, and airports. It also operates standalone coffee and convenience-hybrid formats, a specialist bookstore format (The Bookshop by WHSmith), souvenir stores, plus kids toys and books chain Zoodle. In other words, everything aside from the retail store arm it wants to ditch. The current U.S. pipeline includes about 60 new stores of which eight will be at Orlando Airport, Florida.

End of a Two-Century Era

The fact that the WHSmith group has remained a profitable business is a testament to its management over the past two decades, which has optimized the business and ramped up its travel operations to become a global player. Arguably, for its retail store operations, it has managed to cope with huge online challenges across its core categories as well as it could, which leaves the question for buyers as to where they extract extra value from the retail store operations. Certainly, a honed real estate portfolio will help, but as analysts have pointed out if it were that easy then the current management would have done it already. Whatever happens, a new chapter awaits one of the U.K.’s most storied retailers.