The decision to walk away from the six-year partnership will cost WH Smith a total of pounds 63.5m. This includes a pounds 50m staggered payment to cover the cost of selling unwanted stores. It is also waiving a pounds 13.3m loan to the chain. Boots will include an pounds 80m provision in its current-year figures to cover its share of the costs.
Boots plans to sell or close around 60 of the worst-performing stores and concentrate on the remaining 134. No decision has yet been taken on possible job losses. The chain employs 6,600 staff.
Do It All was created by the 1989 merger of WH Smith's Do It All and Boots' Payless DIY chain. It proved a financial catastrophe, consistently losing ground to rivals such as B&Q and Sainsbury Homebase. Although it made a profit in 1991 it has lost money every year since, including pounds 20m last year. In total its losses have reached more than pounds 60m. Boots and WH Smith have invested a further pounds 75m in the business during that time in an attempt to restore it to profitability.
The decision to end the venture is part of a four-month strategic review of the WH Smith retail empire undertaken by the new chief executive, Bill Cockburn, who joined from the Post Office in January. The remaining details will be announced today and are expected to focus on improving the core WH Smith chain. Commenting on the Do It All decision, he said: "With hindsight, the venture was a disaster. But at the time of the merger the DIY market was booming and it looked like a good deal."
Boots' chief executive, Lord Blyth, said he was confident that the present strategy of improving the 134 stores would work as consumer demand picked up. Like-for-like sales in the core stores have improved by 6.6 per cent in the first 15 weeks of the current year. He added that with further improvement the chain could break even next year.
"We recognise the risks of this deal but we have no doubt that pursuit of the existing strategy is appropriate for the business at this time."
Analysts welcomed Smith's decision to abandon its involvement but questioned Boots' forecast on profits. "There's no way it will break even next year," one said. "They need to increase sales by more than 6 per cent and no capacity is being withdrawn form the market. They will have to take share from others."
Boots shares rose 12.5p to 607.5p. WH Smith edged 3p higher at 484p.Reuse content