Boots ditches Wellbeing strategy to return to its roots as a chemist

By Nigel Cope,City Editor
Friday 28 March 2003 01:00
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Boots abandoned its controversial move into services such as Botox injections and manicures yesterday in a radical reversal of strategy that will see the high street retailer concentrate on its core Boots the Chemists chain instead.

The company is also pulling the plug on its Pure Beauty upmarket cosmetics stores and withdrawing from international markets such as the Netherlands and Italy after racking up heavy losses.

The changes will result in 700 job losses and exceptional charges of £55m. Boots further disappointed the City with a trading statement showing margins had fallen and that this year's profits would be at the bottom end of expectations. The company's shares fell 6 per cent to 545p.

The decision to abandon the Wellbeing strategy finally draws a line under the widely criticised plans of departing chief executive Steve Russell. He had tried to move Boots towards more upmarket products and services to avoid the ever-increasing threat from the major supermarkets.

But announcing the back-to-basics approach yesterday, John McGrath, the chairman, said: "We are sick to death of making thumping big losses. Customers said they liked it [the Wellbeing services] but they didn't vote with their feet. It was probably rolled out too quickly." Boots suffered total losses of £100m on Wellbeing services in less than three years. Last year the division recorded losses of £40m on sales of £20m.

Asked how Mr Russell had taken the dismantling of his strategy, Mr McGrath said: "He's obviously disappointed. It was his dream but he recognises reality."

Most analysts welcomed the news. One said. "It was absolutely predictable and a complete waste of money." Another said: "Now they are just back to the traditional business but have Tesco's tanks parked on their lawn. They are naked."

Boots announced last month that it was closing its alternative therapy services such as aromatherapy, homeopathy and massages. It said it was closing a factory in Airdrie at the same time with the loss of 1,000 jobs.

Boots is now closing all the remaining services including laser hair removal, travel shops and facials. Remaining open will be the longer-standing businesses of dentistry, chiropody and the Lasik eye surgery units.

Twelve Wellbeing centres will close in places such as Oxford, Reading, Manchester and two sites in London on Oxford Street and High Street Kensington. The six Pure Beauty Stores will revert to branches of Boots the Chemists. Boots was pleased with sales level in the stores but the costs were too high.

Also being closed is Handbag.com, Boots' internet portal which is run via a joint venture with Telegraph newspapers. Boots' retail operations overseas will now focus only on Thailand, Taiwan, Hong Kong and Switzerland.

The failure of Wellbeing, Pure Beauty and the reining back of the international operation is further evidence of Boots' inability to develop any retail business apart from Boots the Chemists. Other failures in the past few years have included Boots for Men, Children's World and its digital ventures. "The track record does rather demonstrate that," Mr McGrath admitted.

Some of the diversifications had been made as a result of fears that Boots the Chemists was running out of steam. "I always thought it was not the business that was mature but the managers," Mr McGrath commented. And on the search for a new chief executive, he said there were "people very much in our sights", an indication that Boots still has not yet singled out a key candidate.

Boots' trading update showed like-for-like sales in its fourth quarter were up 3.6 per cent on last year. But the company revealed stock adjustments last year had led to a big jump in margins which have now fallen back. This, together with more price promotions, forced analysts to cut profit forecasts from £590m to £550m for the year to March.

Given the boot: Failed diversifications

Ward White

1989 buy on fears Boots the Chemist had run out of steam. It included Halfords, Payless DIY and Fads. All since sold.

Children's World

Out-of-town children's products concept. It has since been sold to Mothercare.

Boots for Men

An attempt to cash in on male grooming trend of the 1990s. The stores have since closed.

Boots Digital

A joint venture e-commerce channel with Granada. It has since unwound.

Boots International

An attempt to take the Boots the Chemist stores overseas. It failed in Japan, the Netherlands and Italy.

Pure Beauty

Chain of six upmarket cosmetics stores. Will now be closed or converted back to Boots the Chemist stores.

Wellbeing services

"Big Idea" of departing chief Steve Russell to sell services such as homeopathy and Botox injections, to escape supermarkets' competition. Losses of £100m incurred.

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