In its small way, WH Smith is one of the most remarkable retailing stories of the past 20 years. In the early 2000s, a likely fate for a business built on books, stationery, newspapers, CDs and DVDs looked to be “death by Amazon”. What transpired was a textbook display of pragmatic management.
Under Kate Swann, chief executive from 2003 to 2013, WH Smith simply ensured that, however rapidly its sales fell on the high street, it always cut costs harder and replaced declining DVDs and so forth with higher-margin products such as greeting cards. Even as annual revenues dwindled from £1.1bn in 2005 to £600m in 2017, profits on the high street increased – never mind the occasional table-topping appearance in “worst retailer” polls.
Meanwhile, the group as a whole transformed itself by channelling its investment into its “travel” division, meaning shops with semi-captive customers in airports and railway stations at home and abroad; those now number 1,200 across 32 countries.
There is, though, a limit to how long it is possible to defy gravity on the high street. It looks as if WH Smith’s moment coincided with Covid. After the pandemic, high street profits came back at half the old level of £60m-ish. These days, the shiny-looking “travel” stores make 75% of the revenues and 85% of the group profits. The City now views the scruffy 500-strong high street operation as a drag rather than a miracle in retailing on a shoestring.
A disposal, which the company says it is exploring, “would remove a reason not to buy the shares”, commented RBC Capital Markets. Quite. The current share price of £11.47 is a long way from the pre-pandemic peak of £26, despite the travel side chalking up lots of expansion in airports in the US. The motivation for a sale is easy to understand. The stock market prefers simple stories.
Would anyone want to buy an under-invested operation that has already been through the cost-cutting wringer? Well, yes, if the price is right – and, note, RBC’s sum-of-the-parts model values the high street unit at only £109m.
The more interesting question is what a future owner would do. A semi-cheerful strategy would involve another couple of decades of keeping the plates spinning – Post Offices are already in 200 branches, for example. The key to doing so would be to strong-arm landlords into offering cheaper rents. The average length of a lease is less than two years, a testament to how much financial flexibility has already been injected.
The less uplifting vision is one of accelerated decline. WH Smith has been shutting shops at a rate of a dozen or so a year. An even harder-headed owner might be more ruthless.
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The board is under no obligation to sell for anything other than the best price, of course, but one hopes this sale attracts more than the usual crew of firms who specialise in managed executions. When you have 500 stores, you’re sometimes among the last few national retailers on a high street. For the sake of those towns, it would be good if there’s someone out there with fresh ideas for reinvention.
