The reinvention of WHSmith: from high street to airport terminal

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Many British shoppers still perceive WHSmith as a tired high street brand, a relic of the bricks-and-mortar era where schoolchildren and commuters buy magazines, stationery and snacks.

But over the past two decades the chain’s fortunes have been quietly transformed as it built up a small empire of stores in airport terminals across the world, whose best-selling products now include Bose headphones — and Viagra.

The FTSE 250 group’s shift into opening outlets in airport terminals, as well as railway stations and hospitals, has been transformative. Earnings from its travel division have exceeded those of its 537 high street stores every year since 2010.

Now the chain is making its boldest foray yet with a push into the $3.2bn US travel market, the world’s biggest, as well as further expansion in Europe. According to Carl Cowling, the group’s chief executive, revenues from WHSmith’s US travel business will overtake those of its UK high street stores next year as the move gathers pace.

“We are small now but we’re growing rapidly,” he said, adding that recovery in passenger numbers and new store opportunities meant its market share there could double to 20 per cent over the next four to five years.

Underpinning this is a bet that international travel — with its high footfall, premium pricing and impulse spending — will bounce back, despite chaotic scenes at airports this summer and a squeeze on consumer income.

“People still want to go on holiday . . . I think next year will be strong, despite the economic situation,” said Cowling, who took over just a few months before the pandemic shut down much of the global travel industry.

Carl Cowling, chief executive: ‘People still want to go on holiday . . . despite the economic situation’ © Anna Gordon/FT

A decade ago the company had no stores at all in the US and found winning tenders there difficult. But two acquisitions, in 2018 and 2019, remedied that.

InMotion, a retailer of tech products, had established relationships with 24 out of the 25 largest US airports while Las Vegas-based Marshall Retail Group specialised in store designs and product ranges tailored to a location — a skill that American airports, often owned by cities or municipalities, value highly. “They are very good at souvenirs and local branding; we have learned so much from them,” Cowling said.

WHSmith’s US estate now stands at 273 outlets — only one of which bears its parent company’s name — and it is regularly winning tenders for new stores, with a pipeline of 63 to be opened in coming months.

“The US has become the jewel in the crown, it is the most exciting part of WHSmith,” said Richard Chamberlain, an analyst at RBC.

He added that while buying Marshalls just before the pandemic was unfortunate timing, “it was the only remaining large independent travel essentials retailer that was available” and said its impressive record of winning tenders “seems to have continued” under WHSmith ownership.

But the retailer’s US footprint is still a lot smaller than rivals Hudson, owned by Swiss duty-free giant Dufry, and Paradies Lagardère, a unit of the French conglomerate. Between them they control 70 per cent of the US market.

The InMotion brand has now been introduced elsewhere, mainly in the UK and Ireland. Although the stores sell the usual travel accessories they are tilted towards high-ticket tech; a quarter of the premium headphones sold in the UK are sold in airport stores, while the InMotion at Heathrow’s Terminal 2 alone sells £3.5mn of Apple products each year.

By contrast, the WHSmith-branded airport stores in the UK, Europe, India, the Middle East and Australia focus on selling cheaper essentials for travellers.

However, the group has introduced categories such as premium food and pharmacy — where the top-selling product is Viagra — and altered store layouts to nudge average basket sizes higher and encourage impulse purchasing.

WHSmith is pushing into new categories such as pharmacy © Anna Gordon/FT

“The skill is in the layout of the store, really being quite ruthless in the structure of the range and knowing what to leave out,” Cowling said. “When we go out and tender against Relay [another Lagardère brand] our sales densities are so much better.”

Earlier this year WHSmith won a tender from Spanish operator Aena to open 31 stores in airports including Barcelona, Palma de Mallorca and Madrid.

The logistics of running airport shops are complex and rents are high. Airports, which are trying to compensate for pressure on take-off and landing charges by ramping up ancillary revenues, take between 20 and 30 per cent of each store’s sales. Retailers are usually chosen based on how much income they will commit to generating, with sites retendered every few years.

But the potential rewards are rich: around 30 per cent of travellers at Heathrow airport will make a purchase at a WHSmith outlet, compared with around 1 per cent of those passing through London’s Euston rail terminus, according to Cowling.

After two years when travel revenues fell sharply and the division racked up trading losses of £71mn in its 2020 and 2021 financial years, the travel business is now recovering — though the group’s previously high-flying share price remains around half its pre-pandemic peak.

Column chart of By region showing WHSmith's travel stores

WHSmith has also been one of the few beneficiaries of recent chaotic scenes at airports that have kept passengers trapped in terminals for longer.

“It is clearly better for us if people dwell longer,” Cowling admits. “They need food, they need entertainment. But cancellations are not good and capping [of flight numbers] is also not good,” he added, nodding to Heathrow and its biggest customer, British Airways. The UK’s hub airport has capped flights through to October to try to curb disruption; BA has axed more than 10,000 flights from its winter schedule.

Overall passenger numbers are still 20 per cent below 2019 levels, he added, with long-haul last to recover.

“Australia, where we have a big business, was down 80 per cent at the start of this year; it’s now flat. Singapore was down 90 per cent and is now down 20,” he said, predicting that the coming financial year, starting September 1, would be better still.

“There are a lot of people [worldwide] who haven’t been able to go or can’t afford to go on holiday this year,” he said.

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