Ailing Boots searches for a way back to health

A Boots store
A Boots store

Boots’ move to sack more than 4,000 employees heaps yet more pain on the British high street, pushing the number of declared job losses due to coronavirus and the ensuing lockdown to more than 118,000. 

The pharmacy chain suffered a 48pc slump in sales this quarter due to Covid-19, with a 72pc drop in turnover at its Opticians branches. These will bear the brunt of the nearly 50 store closures.

The venerable chemist, founded in 1849 in Nottingham by John Boot, is not alone in reeling from the virus. Retail giants including John Lewis, Harrods and Topshop owner Arcadia are cutting jobs at a frightening pace.

Some argue that, like Boots, many of these companies were already in trouble. The pharmacy announced plans last year to axe 200 of its 2,465 stores and shed 350 staff at its Nottingham headquarters.

In the fourth quarter of 2019, before Covid-19 had hit, Boots posted a 2.1pc fall in sales. Pharmacy sales were down 1pc, while retail sales declined 2.7pc. Boots’ owner, US-based Walgreens Boots Alliance, said profits for the enlarged company were down by almost 10pc, primarily because of its lacklustre performance in Britain. Walgreens will take a $2bn (£1.6bn) hit on its UK arm as it downgrades its prospects for the foreseeable future.

So are the recent job cuts enough to save the embattled retailer? 

The chemist should not be struggling. A big chunk of its money comes from its stable pharmacy operations, the largest in Britain, as it collects fees from the NHS for prescriptions and other services such as vaccinations.

Services such as urine tests and flu jabs can generate better profit margins because people pay for them out of their own pocket. This has always acted as a shield against the travails engulfing some of its high street rivals.

GP visits have fallen significantly since the virus outbreak, meaning the demand for one-off prescriptions and medicines has reduced. Footfall dropped dramatically in Boots shops even though they were allowed to stay open during lockdown. However services are opening up again and a renewed interest in health and wellbeing could lead to an uptick in sales.

Under chief executive Sebastian James, who joined from Dixons Carphone in 2018, Boots has increased its slice of the beauty market, one of the few growing areas in retail. It has added more external brands such as Fenty Beauty and Urban Decay and refitted two dozen beauty halls across the UK to better compete with department stores and online rivals.

Yet analysts say Boots’ stores are stuck in the past after decades of underinvestment. Since being taken private for £11bn in 2007, its various owners have taken out more than £10bn in dividends. 

A Boots store in 1916 - Getty Creative
A Boots store in 1916 – Getty Creative

One trainee pharmacy technician told the Telegraph last year: “You get new products in but basically the store is just the same. The horrible floor, our aircon is broken, they don’t want to pay for it to be fixed.” Another also complained about the air-conditioning system.

Boots responded: “Occasionally things do break down and whenever that happens we have a robust system that enables us to manage a repair as quickly as possible.”

Veteran retail analyst Richard Hyman said: “Boots is a massive under-achiever given the unique strength of its brand. It has an unparalleled level of trust among customers, yet a lack of love and investment from a succession of owners has ensured it underforms. 

“The number of store closures announced this week is nowhere near close to being enough. The trading economics of having 2,500 shops doesn’t work. It must slim its branch portfolio, leverage the huge amount of trust it has among consumers, and focus on health-related services.” 

Boots hopes its “transformation plan” will ensure it emerges stronger from the pandemic, “simplifying structures and processes and reducing fixed costs, whilst accelerating investment in its digital and online capability”.

Biggest Covid job cuts in the UK
Biggest Covid job cuts in the UK

The company noted that it doubled the capacity of over the lockdown period, and was rewarded with a 78pc surge in online sales as a result.

The future may increasingly lie online. But once the jobs axe falls, the retailer will still be left with almost 2,500 sites, all of them accruing business rates, rents and staff costs, at a time when a significant number of people are still too scared to shop in physical stores.

To accelerate the overhaul of the business at home, Boots still needs the blessing of Walgreens, which itself is targeting annual savings of $1.8bn by the end of 2022 to steady the ship.  

The pharmaceutical conglomerate is exploring a $70bn take-private deal. It could yet decide to sell Boots to make a quick buck. 

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