WH Smith is to sell its 480 high street stores to the Hobbycraft owner, Modella Capital, in a deal worth £76m, and has confirmed that the 233-year-old brand will disappear from town centres after a “short transitional period”.
Under the terms of the deal, the high street business, which employs 5,000 staff, will be rebranded as TGJones starting from about June, when the deal is expected to be completed. WH Smith is retaining its brand for its travel shops in railway stations, airports and hospitals.
The books and stationery retailer will keep its almost 1,300 travel stores and its website, although it will no longer offer online sales and will merely provide information. Modella is buying the WH Smith online trading operation, which it is expected to operate under the TGJones name. It did not buy the digital greetings card business Funky Pigeon, however, and WH Smith is now looking at “strategic options” for that business, including potentially selling it.
Last month, industry experts predicted that at least half of the 480 WH Smith high street stores could be closed after a sale, raising the prospect of sweeping job cuts.
Nicholas Found at the industry analysts Retail Economics, said: “The move for WH Smith is a clear reflection of the structural pressures squeezing legacy high street retailers. With falling footfall, rising business rates and wage inflation, the economics of the high street have become increasingly unforgiving, with many grappling to find relevance in a digital-first era.”
The deal gives the WH Smith high street business an enterprise value of £76m on a cash and debt-free basis. While WH Smith says it will realise £52m in cash proceeds, it will pocket just £25m after “transaction and separation costs”.
Carl Cowling, the group chief executive at WH Smith, said: “This is a pivotal moment for WH Smith as we become a business exclusively focused on travel.
“As our travel business has grown, our UK high street business has become a much smaller part of the WH Smith Group. High street is a good business; it is profitable and cash-generative with an experienced and high-performing management team.
“However, given our rapid international growth, now is the right time for a new owner to take the high street business forward.”
Modella, which acquired Hobbycraft last year, also owns The Original Factory Shop chain and previously backed the fashion brand Ted Baker’s ill-fated UK licensee. Modella said the TGJones name for the chain had been chosen to give the same “family” feel as the venerable WH Smith brand.
In a letter to staff, Modella said: “As a very well-known surname in the UK, Jones feels like a worthy successor to Smith and carries the same sense of family, appropriate for a store visited by everyone and there for everyone.” It added it would keep the blue and white colours of the brand.
The company, which runs 800 stores under the various brands it owns, including Create & Craft and Crafter’s Companion, said it was “very much business as usual” while it looked to “define and execute” a strategy for the retailer and introduce new offerings. WH Smith told staff it would take up to a year for shared services such as IT to be handed over under a “transition services agreement”.
In January, the Communication Workers Union raised fears that a sale could make some communities “postal deserts” because 200 post offices were operated within the retailer’s shops.
On Friday, Andy Furey, an assistant secretary of the CWU, which represents thousands of Post Office workers within WH Smith, said the union had always had concerns about WH Smith and thought it was “not a reliable partner for the high street stores”.
He said WH Smith’s workers wanted “cast-iron guarantees” that their terms and conditions would be protected under the new private equity owners amid fears they could be “carpet baggers looking to asset strip it”.
Modella said it intended to “keep all the same products and services, including the Post Office and Toys R Us”, which operates concessions within WH Smith stores. Modella told staff it hoped to “introduce new ranges and other offerings” in future to help improve the business, with more craft goods likely to be top of the list.
Sean Toal, the chief executive of the WH Smith high street business, is moving to Modella to run the business.
“I am delighted that we have agreed a sale with Modella Capital who, I know, will be supportive new owners,” Toal said.
The business was put up for sale in January. Modella and the owner of Bensons for Beds, Alteri Investors, were the final two bidders.
WH Smith said that, in its last financial year, three-quarters of group revenues and 85% of trading profit were derived from its travel business, which operates in 32 countries.
WH Smith is the latest in a string of once ubiquitous names to disappear from high streets, including Debenhams, Topshop, Woolworths and Littlewoods, as consumer tastes and habits change.
Most of those brands closed all their stores, although some continue online. Rebrands are much more unusual but have been done successfully before – such as River Island’s switch from Chelsea Girl in 1991 or Kendall to Next in the 1980s. Morrisons also rebranded dozens of former Safeway stores after it took over the chain in the noughties. Less successfully, Virgin Megastores was rebranded to Zavvi by new owners in 2007 before the high street chain closed down the following year.
