Strategy spotlight: How travel versus high street is playing out at WHSmith

The exception was 2020/21, when travel bore the brunt of the pandemic-induced sales slump, and high street made a short-lived return to growth, owing to the inclusion of stellar ecommerce sales in its totals.   

And while high street margins remain robust for a business in long-term decline owing to its ruthless focus on efficiencies, travel margins are considerably stronger. 

With travel accounting for 66% of group sales and 73% of headline trading profit in 2021/22, and taking well over 70% of total sales in 2022/23, Retail Week analysts look at how the strategic conundrum is impacting the business and discuss the focus for both operations.  

1: Driving international travel growth 

In his last year at the helm, former boss Steve Clarke doubled the size of WHSmith’s international travel business by acquiring two US specialists – InMotion in 2018 and Marshall Retail Group (MRG) in 2019. It was a bold move – especially since WHSmith had had to sell off its original 500-store US travel business in 2003 when the combination of economic downturn and 9/11 fallout moved it from profit to huge losses.  

As the pandemic halted international travel with the ink on the MRG agreement barely dry, current CEO Carl Cowling must have rued his predecessor’s $600m (£475m) acquisition spree. Impacted by global restrictions, travel revenues halved from £817m to £401m over the two years to August 2021 and the business slumped into the red.  

But with US travel leading the global recovery, WHSmith’s second foray into this large market now seems like a savvy move.  

Total travel sales surged 131% to a record £927m in 2021/22 as restrictions were lifted, driven by the US business, with the division firmly back in profit.  

Its pre-close update earlier this week showed travel sales up 42% to account for 73% of total sales, according to Retail Week estimates, corroborating Cowling’s statement at the halfway stage that he expected “travel to represent over 70% of group revenue and around 85% of group profit from trading operations by the end of this financial year”.   

2: New format stores 

While current expansion is focused on North America, WHSmith is being opportunistic in terms of development elsewhere. 

It wasted no time plugging the gap for tech stores at airports following Dixons Travel closure in 2021, establishing 30 InMotion technology stores across the UK. These focus on providing a great customer experience and showcase premium brands, including Apple, Bose and Sony, as well as a wide range of tech accessories.  

The travel arm has since launched a high-end stationery and souvenir format under the Curi.o.city fascia. 

3. Does high street have a long-term future? 

Sales across WHSmith’s high street division had reached nearly £1.2bn in the early 2000s but like-for-like sales have been declining for about 20 years. At £473m in 2021/22, high street sales (which include online) were 45% below 2010 levels, as former core categories, including music and gaming, digitised.  

While the division returned to modest growth in 2020/21, this was driven by ecommerce, which flourished during the pandemic, with physical store sales continuing to decline. Moreover, the improvement proved short-lived, with total high street sales falling again in 2021/22 and 2022/23.  

The high street business accounted for just 34% of group sales in 2021/22 and 27% of headline trading profit, while the retailer’s pre-close update suggests the high street business generated only 26% of total sales in 2022/23.    

WHSmith needs to consider the long-term future of its high street business as the jury is out on how long its serial cost-cutting can work as a valid strategy and with a big chunk of the estate in dire need of investment.  

The retailer should look to apply some of the key lessons from travel to inject forward momentum across the high street. The expanded tech proposition that is working well in travel could resonate with high street shoppers, while the move towards more third-party partnerships could propel the high street into a growth phase, offsetting the ongoing reduction in network size.  

4. Making more of partnerships  

WHSmith’s longstanding partnership with the Post Office is integral to its aim of being the ‘hub of the high street’. It hosts post office counters in more than 200 high street stores, helping to secure the long-term sustainability of postal and banking services for local communities as well as driving additional customer footfall.  

A more recent collaboration with InPost lockers allows customers to collect or return parcels from a wide range of retailers at 184 high street stores, also generating more footfall.  

WHSmith is now turning to branded implants with complementary fashion, stationery and gifting brands within some high street locations.  

By the end of August there were 100 Tinc stationery and accessory implants and more than 60 Legami units across the network –  a smart play by Cowling to grab more share in these categories following Paperchase’s disappearance from the high street.  

In a particularly high-profile initiative, WHSmith is partnering with Toys R Us to trial concessions for the US toy specialist at an initial nine stores, but with serious scope for growth if the pilot proves successful.  

The collaborative approach is becoming increasingly important across the wider travel division, too.  

WHSmith is a long-term franchise partner of M&S, operating 26 M&S stores and 28 implants within its (mainly hospital) stores. It also partners with Costa Coffee.  

It launched a trial with Holland & Barrett for branded fixtures from the supplements and health foods specialist in three travel stores at the end of 2022. This has since been rolled out to 10 further stores, with another 20 lined up to receive a Holland & Barrett display unit from November.  

Virgin Wines has become WHSmith’s latest partner, with around 40 travel stores offering a range of Virgin Wines from July.     

As collaborations become increasingly important in retail, WHSmith is in a strong position to improve its offer in key areas by lining up other potential partners and extending the presence of existing ones. 

5. Improving online performance 

Despite the acquisition of several specialist businesses to boost appeal, WHSmith’s ecommerce operation has not set the world alight.  

Online sales are generated via the core WHSmith website, the dedicated Funky Pigeon personalised cards and gifts site, Cultpens.com, and specialist stationery sites treeofhearts.co.uk and dottyaboutpaper.co.uk.  

Online sales are included within high street totals and, apart from funkypigeon.com, which files dedicated accounts at Companies House, WHSmith gives little indication of its digital performance. 

Retail Week estimates that online sales peaked at around £200m, or 22.5% of group sales, at the height of the pandemic in 2020/21, but probably fell back to around £140m in 2021/22 as stores reopened. The decline also reflected a 35% drop in Funkypigeon.com sales to £35m in 2021/22 after it was hit by a cyber incident and rival specialists such as Moonpig and Thortful encroach increasingly on its territory.  

Continuing to focus on profits over sales, driving efficiencies to strengthen margins, remains a core part of the strategy. WHSmith achieved cost-savings of £42m in 2021/22 (up from £30m the year before), with an additional £24m of savings identified over the following three years. But with many of its high street stores in dire need of investment, it may be time to call a halt on the relentless drive for cost reduction.