The Retail Note | Alias WH Smith and TG Jones
11 minutes to read
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This week’s Retail Note focuses on the sale of WH Smith’s high street business to private equity and the potential future implications.
Key Messages
- WH Smith name to disappear from the UK high street
- Business sold to PE Modella Capital for £76m
- Excludes WH Smith Travel Business, which will continue
- WHS high st business generated just 25% of group revenue and 15% of profits
- Portfolio had been shrinking but still 450+ stores
- Modella also owns Hobbycraft and Original Factory Shop
- Also reportedly eying Lakeland
- Limited commonality/synergy between acquired businesses
- Little transparency on Modella’s modus operandi
- Acquisitions largely opportunistic
- WH Smith stores to be rebranded as TG Jones
- Further strategic announcements yet to be made
- Some store closures inevitable, but orderly rather than wholesale
- Difficult to speculate further with strategic clarity.
Very proud of that title and apologies if anyone got there before me. And appreciating that it will be lost on many…
Another one bites the dust. One of the longest-established retail brands, not just in the UK but globally, is to disappear from the high street. After 233 years as a high street fixture, WH Smith has sold its non-travel division to private equity house Modella. The WH Smith name is not part of the deal, so Modella is rebranding the 450+ stores as TG Jones, a fictitious fabrication designed to convey “the same sense of family”.
Two questions to address: why has it come to this and what is the future of the business? The first immeasurably easier to answer than the second.
Why?
WH Smith has had a rich and illustrious history, far too long and eventful to detail here. But the net result was essentially a two-division operation, one a globe-trotting Travel Retail business, the other a somewhat staid UK High Street brand. The former by far the favoured sibling, the latter a bit of a problem child. Which has finally been put up for adoption.
The writing has been on the wall for a long time. Every trading update from WH Smith for years has followed a similar pattern. The Travel Division has boasted stellar growth, the High Street has been going backwards. Take the last trading update from January as an example of what we’ve seen for years: for the 21 weeks to 25 Jan 2025, total travel sales were up 7% for the period compared to the previous year, up 8% in constant currency and 6% on a like-for-like basis. Its high street business, by comparison, was down 6% in total revenues and constant currency, and 3% like-for-like for the same period. While still profitable, the high street business contributed only around 25% of group revenue 15% of the group’s bottom line.
Easily forgotten now, but these metrics were completely turned on their head during COVID, the global pandemic bringing all domestic and international travel to a shuddering halt and effectively rendering WH Smith’s travel business redundant for extended periods of time. While the travel business contributed virtually nothing during this time, the high street business was at least trying to bring some cashflow to the table to keep things afloat.
Unsurprisingly, the travel business has been the recipient of the lions share of management focus and investment for a very long time. Even now, the business has a pipeline of 60 new travel outlets in the US alone.
Although they bear the same family name and there is some product cross-over, WH Smith’s travel and high street businesses are fundamentally different. We all know that retailing generally is a tough gig, but there are some exceptions. A personal opinion, but how difficult can travel retail be? Selling a very edited, high margin product range from low-running cost, utilitarian white boxes in high traffic areas to a captive market of undiscerning or time-pressed travellers (often de-mob happy holiday-makers) really can’t be that hard. Especially when you can ramp up prices even further and still maintain high volumes of product, at more elevated margin. There, I’ve said it.
Contrast this with the manifold challenges of high street retailing. Complex store selection and site optimisation, a myriad of product sourcing, ranging and visual merchandising challenges, a higher cost base, huge variations in trading locations, wider competition and exposure to a multi-channel world to which the travel business is largely incubated. Much harder work.
The hard or soft option, which would you choose? No implied criticism of WH Smith management, they have chosen the latter, as virtually anyone would. The net result is that all investment and love has been channeled into the travel business, while the high street business has been left almost entirely to its own devices.
A lack of long-term investment is almost singularly the reason for WH Smith’s high street ‘demise’. Successive management teams have recognized that the future of business lies elsewhere and they have effectively not just left the high street business to its own devices, but passively run it into the ground. The practicalities of this have been a slow retrenchment of the portfolio. Rather than take a hatchet to the portfolio or do something drastic like a CVA, stores have largely closed as leases lapse or expire. The residual estate is equally in a pretty sad and sorry state, with limited investment in store upgrades. Ironically, WH Smith has proved something of a pioneer in self-service check-outs, the business recognizing the fact that this was a far more cost-effective way of managing staff costs.
The ’demise’ of such an historic and well-known high street brand inevitably dominated national news, as did Woolworths’, BHS’ and Debenhams’ before it. And cue an inevitable wave of misty-eyed nostalgia and wise-after-the-event ‘experts’ lazily putting the ‘demise’ down to weak consumer demand and the rise of online. Both reasons difficult to square – so disparate is WH Smith’s product range that surely it is hedged against soft demand in just one category? Equally, books is the only real category within WH Smith’s broad repertoire that has any high degree of online penetration, so pretty difficult to point the finger of blame here.
A lack of commitment underpinned by a virtual absence of investment over many years – WH Smith’s demise in a nutshell. A long-term strategic running down of the business now superseded by a sale.
The future
Enter stage left Modella Capital. The private equity firm paid £76m for the high street business, reportedly beating off interest from other parties which included, at various stages, HMV owner Doug Putman and turnaround specialist Alteri (owner of Bensons for Beds). In a statement to the London Stock Exchange, WH Smith said the consideration represents an enterprise value of £76m on a cash and debt-free basis, with gross cash proceeds of £52m. Net cash proceeds are expected to be around £25m after transaction and separation costs.
The transaction is set to be complete in the final quarter of the group’s current financial year, with anticipated gross cash proceeds of £36m when completed, along with a further £6m 12 months following that, and up to £10m in additional proceeds based on “timing and realisation of certain tax assets” within the high street business.
Little is known of Modella Capital, other than they have been very acquisitive of late. They bought the 120-strong out-of-town operator Hobbycraft in August 2024, before acquiring the 180-store value operator The Original Factory Shop in February this year. Having secured WH Smith, they are now reportedly turning their attention to the kitchenware chain Lakeland as their next takeover target.
Four disparate businesses and brands, with very limited product cross-over and few obvious synergies. It is impossible to look at any of these deals as anything other than opportunistic. And the words opportunistic and private equity in the same sentence raise any number of red flags.
That the WH Smith name would not transfer to the new owners was inevitable. Two separate custodians of the same brand would not have worked for either party, the only option would probably have been if Modella had sought to operate the brand under franchise, but WH Smith clearly had more to benefit by making a clean break.
Modella Capital were quick to announce that the 450+ stores would be rebranded as TG Jones. Smith a very common family name, Jones likewise. WH Smith an actual family name with 200+ years’ heritage and association, TG Jones a fictitious one with none of the above.
Easy to debate the whys and wherefores of the brand name, but actually that is little more than a mere distraction or sideshow in this case. Apart from the change of fascia, little has been forthcoming as to the future strategic direction of the business, least of all the most fundamental thing of all – what is it actually going to sell? As mentioned already, WH Smith’s high street product range is so extensive that it is unwieldly (stationary, books, magazines, confectionary, art and craft, toys, games, gifts and many more besides). Any possible turnaround under previous or future ownership would require a much tighter product focus and areas of specialism/USP.
It seems fair to assume that Modella won’t just carry on in the old WH Smith mould, selling exactly the same product range, certainly not beyond the short-term. There is some cross-over of product with step-sister company Hobbycraft and this could undoubtedly be exploited to some degree. But a 450+ store chain of art and craft stores on the high street, an in-town, edited version of Hobbycraft, stretches the bounds of credibility. A fundamentally niche sector surely does not warrant such extensive national coverage.
What the business majors in product-wise and how it strategically executes this will obviously dictate the fate of the store portfolio. At present, with no strategic plan forthcoming beyond the brand name and we can be speculate. And with little known of Modella Capital’s modus operandi, any speculation is even more shrouded in mystery. But here goes…
The two extreme scenarios are a good starting point. The worse case scenario would see Modella remain true to private equity type and just kill the business. Rather than run it down slowly, in a managed way as WH Smith was doing, Modella can simply accelerate the process in a brutal way. Sell off the stock, close down the stores or assign leases. A classic asset-strip. That said, it’s hard to see what assets there really are to strip in this case. No freehold property, no intellectual property, no brand collateral, all it really has acquired is a high street presence and the actual stock in the stores and warehouses (assuming that is even the case?). £76m seems a lot to pay if Modella just wants to asset-strip and be done with it – some reassurance that the worst case scenario may not come to pass?
At the other extreme, the best case scenario is that the new owners make a real go of turning the business around. They appoint the right management, with the right vision and address the strategic shortcomings of the business as is, through the necessary long-term investment. And create a flourishing, sustainable business that adds value to the high street. Unlikely I know, but stranger things have happened – for example, who would have thought that Next would emerge from the old Hepworth business?
As ever, the reality is likely to lie somewhere between these two extremes. Whatever the strategic direction, it is difficult to see the business sustaining 450+ stores in the medium- to longer-term. Store closures are inevitable, but again, these are likely to be driven by lease events. At this stage, it is impossible to put either a number or timescale on this.
I suppose the ‘best realistic’ scenario is one whereby the new business is able to reinvent itself around a more focused product range (apologies for the stuck record…) and a rightsized store portfolio consummate with that vision. A well-managed stationary / arts & craft specialist (with Post Office and Toys ‘R Us implants?), with a portfolio of 200 – 300 stores? And a brand that comes to stand for something? Not watertight, but HMV a bit of a role model here? Or perhaps even more ironically, Waterstone’s, WH Smith’s erstwhile-owned (1993 – 1998) subsidiary?
Bigger picture
Adieu WH Smith, from the high street at least. A brand that everyone is familiar with and will have various affiliations and associations to. A few of my personal ones (mainly of the store in Guildford): football Panini Stickers in the 1970s, my first PC (a ZX81), records and cassettes in the 1980s. And the Christmas edition of the Radio Times. And latterly, large white toblerones, that can be surprisingly difficult to source elsewhere.
Of course, the ‘demise’ of WH Smith will be bracketed along with the fates of C&A, Woolworths, BHS, Arcadia and Debenhams and therefore labelled as endemic of the death of the high street. But this is somewhat different – a strategic sale off the back of historic under-investment, rather than a failure outright.
450+ stores are not about to come to the market in one fell swoop. Some inevitably will over time and new occupier demand will vary massively by location. Believe me, retail leasing agents (Knight Frank’s included) are already scouring the store lists for potential opportunities.
I quote from the title of this note: “And in all the trains and banks they robbed, they never shot anyone. This made our two latter-day Robin Hoods very popular - with everyone but the railroads and the banks”. Look it up on YouTube/Wikipedia…