WHSmith has bought US travel retail specialist InMotion for £155m. How will the deal bolster WHSmith’s international operations?
The acquisition doubles the size of WHSmith’s international travel business by sales and profits.
InMotion is the largest airport-based digital accessories retailer in North America, with 750 staff and 114 stores across 43 airports in the US.
It mainly sells consumer electronics and travel accessories such as headphones and portable chargers.
Stephen Clarke, Whsmith’s group chief executive, said InMotion would provide the firm with a “scalable platform” to launch the British retailer’s airport format into the US.
The City seems to approve of WHSmith’s purchase – shares in the retailer closed 4.9% higher at £18.19 on the day the deal was disclosed.
Broker Peel Hunt was “upbeat” about the transaction.
It observed: “The more that we look at it strategically, the more excited we become. A glance at the passengers on any form of transport suggests that two trends are rampant – athleisure and digital accessories.
“WHSmith is tapping into demand for the latter in the biggest travel retail market of all with this EPS-enhancing acquisition.
“It is the wider strategic opportunity that gets us really excited though.”
State of competition
The broker maintained that InMotion’s relationships with airport landlords ”can unlock the door to WHSmith Travel’s core format appearing in the US, and its infrastructure has capacity to help too.”
Neil Saunders, managing director of GlobalData Retail, described WHSmith’s acquisition as “sensible” because competition in the airport environment is not as intense as in traditional retail in the US.
He said: “Generally, InMotion’s retail standards are better than WHSmith’s, so it is probably just as well that existing management at the division is being retained.
“By gaining a toehold in the US airport market, WHSmith will hope to drive growth both by expanding InMotion and potentially launching its own airport travel stores.
“There are lots of airports and travel locations where InMotion is not present and having the backing of WHSmith may accelerate expansion.”
But Saunders also sounded a note of warning about WHSmith’s need to differentiate in US airports.
“Hudson News, which is part of Hudson Group owned by Dufry, has a very big presence in airports and while its offer is far from fantastic, it is very similar to WHSmith,” he said.
“If WHSmith wants to take on Hudson it will need to come up with a compelling format and offering – and this kind of innovation is not something it is renowned for.”
Overseas difficulties
Mike van Dulken, head of research at London stockbroker Accendo Markets, expects WHSmith to avoid the fate of the likes of Fresh & Easy, Tesco’s ill-fated US adventure.
He said: “WHSmith is not doing anything drastically different to its core international travel business. They are taking less of a risk. The outlets are in the same area and they will have done their recon.”
Broker Whitman Howard also welcomed the deal. It said: ”It is the first material acquisition by a management team that has to date grown the travel business organically. It shows that WHSmith is serious about extending its reach into the US market without having to go fully the organic route.
”It will in time demonstrate whether management can handle M&A, potentially adding to the optionality here. Clearly there are also risks – US market, buying from private equity, existing management traction. But we believe in this management and prefer to look to the upside.”
WHSmith chief executive Stephen Clarke said: “The acquisition of InMotion is an exciting value-creation opportunity and marks a major step in our international travel retail growth strategy.”
Clarke said that both the US travel market and digital accessories market were growing quickly and WHSmith was now in a good position to reap the benefits.
He added that the retailer had been actively searching for acquisition opportunities to expand its travel business and did not rule out further acquisitions in the future.
WHSmith’s recent growth has come from its travel division, which has expanded rapidly in recent years, fuelled by rising traveller numbers and the shift to convenience shopping.
Earlier this month WHSmith revealed high street profits and sales fell during the last year - with the business boosted by its travel arm
High street sales were down 3% on a total and like-for-like basis while the business’ travel arm sales were up 8% in total and 3% on a like-for-like basis. Total revenue climbed 2% in the year to August 2018.
The business undertook a review of its high street arm and will close around six stores as a result.
Many UK retailers have tried to stake their claim in the promised land of the US, only to fall foul of the barriers presented by breaking into such a large and highly competitive market where tastes and shopping habits can differ wildly.
But consensus on the InMotion acquisition appears to be that WHSmith has made a savvy investment that will play to its strengths and avoid the pitfalls of a saturated retail environment.
No comments yet