S Poddar
Insiders believe at least half of WH Smith’s high street stores may close as part of a cuts drive by a new owner. This has implications for jobs at the embattled retailer, which currently operates 500 high street outlets and employs around 5,000 staff.
Analysts believe that any potential buyer would most likely retain no more than 250 stores, indicating a huge downsizing of the chain. Bids for the company are expected to be submitted within the coming weeks, and a deal is anticipated to be finalized by early May.
Presently, the firm is in a discussion with would-be investors from private equity firm Hilco to Alteri; it also recently held talks with Modella Capital, which owned Hobbycraft and Doug Putman, who also owned HMV. WH Smith is now emphasizing its travel retail business, its area of fast growth, at international and core UK locations through airports, hospitals, and key train stations.
Reports suggest that the prospective buyers would go as high as £100 million for the high street division of WH Smith. The sale would involve the Richard & Judy Bookclub brand, around 200 stores with large post office operations, and the rights to distribute Toys R Us products in the UK.
The business’s profits, excluding its online subsidiary Funky Pigeon, which is not part of the sale, are estimated by retail analyst Jonathan Pritchard from investment bank Peel Hunt to be under £16 million once central costs are factored in. He also warned that the final purchase price may be lower than expected.
According to reports, WH Smith assured bidders that central costs were far more digestible than those in Pritchard’s analysis. The firm said also that the majority of its stores did not lose money, but one of the world’s most respected retail executives believed the new owner would retain less than half the present number.
“I don’t see how anyone would want to run 500 high street locations. Some of them do really well, but others obviously don’t,” the executive said.
With most of WH Smith’s store leases having an average remaining term of less than two years, industry observers believe there is an opportunity for the company to reduce its footprint and focus on a more profitable core of stores. Experts predict that the 200 locations with major post office services are the most likely to be retained, while other underperforming outlets may be phased out.
WH Smith has already been restructuring, closing 14 stores in 2024 and announcing 17 more closures this year. According to Jonathan De Mello, a property analyst, the new owner will most probably have to put a restructuring plan in place to be sustainable in the long term.
“A full restructuring looks inevitable for any buyer,” said De Mello.
According to another expert, many WH Smith stores were underinvested.
“It still has its place on the high street, but that place is getting smaller and smaller. It is profitable, though not enough to be worthwhile, and managing a retail business in this environment is highly difficult. The company was stretched to the limits,” explained the expert.
And some trade sources think that surplus shops could be sold off in volumes to shops like Marks & Spencer or The Range, allowing WH Smith to reap some value from its downsizing programme.
Pritchard argues that if slashing the numbers of high street stores drastically was the way to a stronger business model then WH Smith would have acted much more unambiguously in that direction.
“They have managed the asset very well. It’s not so much about underinvesting, but the location of these stores are on high streets and footfalls have been declining each year,” he added.
A retail property expert says if WH Smith significantly reduces its high street presence, then it would be losing brand relevance. And an investor could demand financial incentives to take over the full portfolio of stores.
Although there has been no suggestion that WH Smith is looking for such an arrangement, the analyst surmised that the firm may have to provide more protection to ensure the deal saves the majority of its outlets.
“If they began to close post offices, the outcry would be phenomenal. The backlash in terms of PR would be extreme,” added the analyst.
WH Smith has said it will not go ahead with the sale if a strong offer does not emerge. De Mello however thinks the company is unlikely to about-turn at this stage after all the scrutiny and speculation that has surrounded the deal.
“Eventually, some of these stores are going to have to close. Better to make the painful decision now than to delay the inevitable,” he added.
The retailer faces a battle in an increasingly competitive landscape. The retailer faces high street footfall decline and the increasing cost that makes profitability even harder, prompting some industry analysts to compare the company to former retail giants such as Wilko and Woolworths, which struggled to adapt and eventually disappeared from the market.
Whether WH Smith restructuring will ensure survival on the high street in the long term cannot be ascertained. Instead, what will surely come true is that enormous changes are destined for the future of the company, and WH Smith’s own future will therefore depend on strategies that will begin to be materialized in a couple of months.
