BRAINFOOD: Behind the spin - Boots PLC

BRAINFOOD: Behind the spin - Boots PLC - THE DILEMMA

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Last Updated: 09 Oct 2013

THE DILEMMA

Boots' new chief executive, 40-year-old former Asda COO Richard Baker, has a headache that will not be cured by Nurofen. Profits at the nation's favourite chemist have fallen by more than pounds 100 million this year, with losses at its dentalcare and chiropody businesses totalling pounds 22 million.

These days, 1,400-odd stores and brand recognition that rivals would kill for is not enough to keep the shareholders happy. Long-term problems getting its customers to climb the stairs have left thousands of underperforming square feet on the upper level of many of Boots' shops. Upstairs is where the high-margin goods like Rosemary Conley bodyfat scales and Krups' Panini press are often to be found. But Boots' biggest commercial blunder has been its Wellbeing initiative, a desperate attempt to boost growth by cashing in on the Botox and nail-bar phenomenon with its high street beauty centres. It ended with 700 redundancies in March and the departure of boss Steve Russell. A factory in Lanarkshire has also been closed and 500 more jobs went at the firm's Nottingham HQ in June.

THE SPIN

Boots' former chairman and stand-in CEO John McGrath (who retired in September when Baker joined) adopted the classic mea culpa approach to damage limitation, by 'fessing up to the firm's numerous commercial sins.

'Boots can't be faulted for trying different things. What we can be faulted on is our failure rate,' he said. And more enigmatically: 'I always thought it was not the business that was mature but the managers.'

THE STRAIGHT TALK

City analyst comment verges on the damning. The failure of Wellbeing 'was absolutely predictable and a complete waste of money', pronounced one, and, moaned another of the new strategy: 'I had three conversations with them and I still don't really understand it properly.' And, warns a third: 'Now they are just back to the traditional business but have Tesco's tanks parked on their lawn. They are naked.' Others are more constructive.

'The new chief executive has to get the balance right between sales and margins,' says one. 'They need a real retailer to get in there and take the business by the scruff of the neck.'

THE VERDICT

Boots' old guard may have left the shop in a mess, but it has since done all it can to give Baker his best chance of success. Retailers don't come tougher than those raised in the Asda/Wal-Mart tradition, but the 154-year-old company will need more than founder John Boot's herbal remedies to make a full recovery.

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