Arrivals and departures – how WHSmith, Dixons and Monsoon see direction of travel retail

This week, electricals specialists Dixons Carphone revealed it will shut its Dixons Travel business, comprising 35 stores mainly in airports in the UK and Ireland.

The retailer said the shops had become “unsustainably loss-making” and it did not expect passenger numbers to return sufficiently in the near future to make up the shortfall.

In contrast, retailers such as WHSmith, which issued interim results this week, and fashion specialist Monsoon have taken a different direction. Both aim to expand to new travel locations – and potentially snap up space left by Dixons Carphone – in the belief that travel will be a top priority for people when normality returns.

The end of duty-free

From January 1 this year, the UK government scrapped duty-free shopping for international visitors, meaning fewer passengers would be inclined to make expensive purchases airside.

Luxury retailers such as Burberry and Harrods have spoken out against the change but Dixons is also one of the affected retailers and has decided to withdraw from travel locations altogether even though it said the division “historically made an annual profit contribution of over £20m”.

A Dixons Carphone spokesperson said the decision “follows an unprecedented year for the travel industry, which has seen UK airline passenger volumes fall by 75% in 2020 due to Covid-19 restrictions”.

“This, coupled with our expectation that passenger numbers will not recover sufficiently to compensate for the removal of the tax-free shopping concession by the UK government, means Dixons Travel, which makes up 1% of our UK and Ireland selling space, has become unsustainably loss-making.”

The retailer told Retail Week it believes with travel restrictions and quarantine measures in place, international travel will not return to normal levels for a few years, and without tax-free shopping, there is little point in waiting.

Heathrow airport’s predictions for passenger numbers have reflected this – the airport originally predicted a partial recovery of 37 million customers this year, after 22 million passed through last year.

However, just 1.7 million travellers used Heathrow from January to March, meaning its estimate has been downgraded to as low as 13 million – an unsustainable level for some retailers.

Heathrow retail boss Fraser Brown conceded it was “unsurprising” that the removal of tax-free shopping was a key factor in Dixon Carphone’s decision.

He said: “We’re saddened that a retailer we’ve worked with for 27 years has announced their intention to permanently leave the travel retail sector due to uncertainty around the restart of international travel and harmful decision making from the government.” 

“We’ve repeatedly called out that the government failed to consider the catastrophic impact of this policy to the travel and tourism industry.”

Plugging the gaps

The closure of Dixons Travel stores leaves both physical space available and an opportunity for a new electricals retailer to take its place.

WHSmith, which bought US airport tech accessories retailer InMotion in 2018, is poised to do just that.

“I was surprised by Dixons’ decision,” says WHSmith chief executive Carl Cowling, who was also managing director of Dixons Travel from 2009 to 2011.

“Electrical accessories in airports is a great business and I think we will be able to step in to give an alternative. 

“Dixons say they feel they can’t make that proposition work in airports, but I think we can for two reasons: first of all, we’ve got the infrastructure in place so there will be a cost-efficiency for us running it – we don’t need an extra warehouse on-site, and we’ve got all the back-end, operational people who could be part of it. 

“Then I think the model for electricals has increasingly been people wanting electrical accessories and less so the hardware, which is the InMotion offer, and I think that format could work really well in UK airports.”

WHSmith has opened pilot InMotion stores in Leeds and Alicante airports and is in the process of opening one in Berlin.

With Dixons stores set to close in the near future, Cowling says he is ready to launch the store format in UK airports whenever possible.

Aside from InMotion, WHSmith has also been on an expansion drive to win store locations from airport landlords and competitors.

The retailer has already gained, or has in the pipeline, 100 stores in the next three years, including 60 in North America. A convertible bond offering accompanying this week’s results means it now has £100m of “firepower [to] carry on with the aggressive tenders we’re doing and to continue to expand”, according to Cowling.

“We’re always looking for spaces. I think the Dixons spaces will get taken up by another tech business but there are plenty of other opportunities for us”

Nick Stowe, Monsoon/Accessorize

WHSmith’s expansion plans are echoed by clothing and jewellery retailer Monsoon/Accessorize.

Chief executive Nick Stowe says his business is firmly in the WHSmith camp when it comes to the direction of travel retail.

“We’re big fans of travel and it’s historically been a great thing for the Accessorize business and we think it’s going to continue to be so,” he says.

“We love the travel environment. We’re different from WHSmith but both businesses are based on impulse purchases for people who get to the airport and think: ’I’ve forgotten my bikini or sunglasses’.”

At present, the retailer operates 15 airport stores and 10 train station branches in the UK but has set its sights on European expansion, as well as planned stores in Heathrow Terminal 2 and Manchester’s new terminal later this year.

“We’ve got around 10 or 15 locations we’re looking at across Europe which we think will be productive,” he says.

“We’re always looking for spaces. I think the Dixons spaces will get taken up by another tech travel business but there are plenty of other opportunities for us. 

“Some of the other people who have fallen by the wayside, particularly in train stations, represent more of an opportunity. There’s plenty of spaces in airports but we are picking up where people are pulling out.”

Recovery trajectory

Both WHSmith and Monsoon/Accessorize point to the US recovery as indicative of what could be to come.

Retail analyst Nick Bubb thinks that WHSmith’s forecast could be a little too rose-tinted, however.

“Not surprisingly, the tone of the statement was bullish, pointing to the recovery in the key North American travel operation and the potential to take on space vacated by other airport retailers,” he explains.

”But the 65% slump in overall travel revenue in the first half drove a move into an overall loss for the group and even in Q3 to date, travel sales are 57% down on 2019 levels, so some investors may take the comment from Cowling with a pinch of salt: ‘We are an important retail partner for our Travel landlords and we are well-positioned to take advantage of further space opportunities that will arise over the coming months’.”

Nevertheless, Cowling takes heart from the trends in the US.

“Travel has clearly been hit hard by the pandemic but we’ve seen good signs of recovery in the US particularly,” he says.

“It’s the fastest recovering market and 85% of flights are domestic; it’s a big country and people have to get around. They’ve done really well with vaccinations, the death rate has gone down significantly in the US and life is getting back to normal.”

He cites US Transportation Security Administration data that shows domestic passenger numbers are down between 35% and 40% on 2019 levels in the US, compared with a 95% reduction in most other countries.

“The US numbers are getting better every month, especially in places like Las Vegas where they’re down just 20% compared with 2019,” Cowling points out.

Stowe concurs: “If you look at the best example of what’s happening to travel as people come out of a pandemic, US domestic travel is going gangbusters. It doesn’t feel any different today than it did 24 months ago. 

“We’re betting that that is going to be the same thing in the UK and Europe. It might happen slower than people want, or a little bit haphazardly, but it will come back.”

While Stowe is more conservative in his predictions that travel will return to normal levels in the next 12-18 months, Cowling thinks short-haul and domestic UK flights could return this summer, while longer-distance flights would return after Christmas.

Ultimately, both retailers are in it for the long haul, placing their bets that leisure travel, in particular, will return.

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