Beauty market

Tired old boots need a makeover after Walgreens canceled sale. But how? | Analysis and Features

It was hardly a ringing endorsement. After calling off the sale of Boots last month, Walgreens Boots Alliance CEO Rosalind Brewer told analysts Boots should be “good enough for us to hold onto as well as look at strategic opportunities for that.”

And now ? It will be a real challenge in terms of the amount of human and financial capital Walgreens is willing to invest, says Clive Black of Shore Capital. “The reality is that the parent doesn’t want the child and that creates all sorts of difficulties in retaining and attracting the best,” he adds.

UK chief executive Sebastian James did his best to speak more optimistically, hailing Boots’ post-Covid transformation in a business update after the announcement, promising “significant investment” online and in stores.

Boots sales jumped 24% in the third quarter to May 31 as shoppers returned to the high streets. The growth came on top of an increase of 16% in the first quarter and 22% in the second quarter. However, low numbers from a year ago flatter recent exchanges, and attendance is still a far cry from where it was in 2019.

Retail analyst Nick Bubb estimates retail sales are still more than 10% below pre-pandemic levels. “Over three years, Boots has lost overall market share to supermarkets, discounters and online players,” he says. Given that Boots says the beauty market share is at an all-time high of 40% and the drugstore sector is flat, Bubb thinks something else must be holding him back.

On the other hand, Boots has received plenty of support, with around £200-300million invested a year in logistics, warehousing and improving digital capabilities, a source close to Walgreens said. And despite a notoriously tired business domain, Black says Boots is not a basket case. “There are fantastic features in terms of legacy, trust and brands like No7 – and it’s still very cash-generating.”

Those qualities weren’t enough to convince private equity suitors to cough up the £7billion price tag Walgreens wanted. The only concrete bid after a six-month auction came from Apollo Global Management and Reliance Industries in India, but Walgreens said the bid of more than £5billion was not fair value .

A former Boots executive said the £7billion asking price was not rooted in reality. “It’s a very mature company,” he says. “Very cash-generating but almost a utility company in that the growth prospects are very low. It has high market shares in areas where it is strong and is respectable in other areas. But most of its stores are in places where natural footfall is declining due to the internet and out-of-town shopping.

Boot shop


Walgreens has made some progress, closing around 200 of the worst offenders, investing in 100 revamped beauty salons, opening new stores in better locations and reinventing London flagships.

But Catherine Shuttleworth, CEO of marketing agency Savvy, says there needs to be more focus on retail basics.

“The in-store experience is something that impacts the brand as a whole and leaves shoppers with little appetite to return.”

Consumer expert Kate Hardcastle complains of “messy and overwhelming” counters and overworked pharmacists too busy to help customers properly.

She points to a concept store in London’s Covent Garden – which British doctor James called the start of a “boots reinvention journey” when it opened in 2019 – as a missed opportunity.

“Go to most other branches and any sign of this concept has usually been done in such a limited way that it means little,” says Hardcastle.

For Steve Dresser of Grocery Insight, the question is more fundamental. “There’s a good retailer somewhere, but it’s hard to see what the shops on the tired high streets would get from a redevelopment.”

So why isn’t it just closing more of its 2,247 stores? Besides reliable cash generation, a real estate expert says the answer lies in the pharmacy licenses attached to them.

“The government announced years ago that it would no longer license these pharmacies. They are therefore gold dust. This partly explains why Boots retains so many legacy stores.

Boots is also notorious among estate agents for its penchant for restrictive covenants in leases, preventing other pharmacies – notably Superdrug – from entering the same immediate area.

Speaking of Superdrug, Dresser thinks Boots isn’t connecting enough with the younger demographic. “All teenagers go to Superdrug now,” he says.

Then there is value. According to Dresser, in the area of ​​toiletries, Boots is being overwhelmed by various discounters on value.

And Black says the increased focus on health and beauty by Sainsbury’s and Tesco – both run by former Boots bosses – and the “enormous” volumes of toiletries displaced by Home Bargains, have left Boots caught in a pincer movement.

Shuttleworth gives an example of a Garnier product reduced from £6.25 to £3.50 in boots this week, which could also be purchased in Bodycare for £2.95.

“It’s a throwback to the insulting prices of one of the brands we should be able to trust the most.”


GlobalData retail analyst Juliet Cuell counters that Boots has taken steps in the right direction to improve its value for money offering, including the launch of its Price Advantage program in-store and online, and a freeze prices on 1,500 essential own-brand products. .

“However, it will need to expand its membership pricing system to include a wider variety of brands or risk losing shoppers to discounters.”

Online is one area where Boots can credibly indicate improvement, with sales having doubled from pre-Covid levels. It claims to be the most visited health and beauty website in the UK.

However, Dresser and Black are unimpressed compared to Next and M&S, and Shuttleworth points to the rise of DTC operators such as Beauty Bay and Look Fantastic.

Cuell says Boots needs to improve execution “to match rivals such as Asos”, with “free delivery only available on orders over £25”.

The former Boots executive said critics shouldn’t lose sight of the fact that it’s a “very stable” business with good cash flow. “To transform it to the scale necessary to make it all shiny and shiny would be a ridiculous capital outlay that you would never get a return on,” he claims.

Analyst Bubb suspects Boots will continue to operate, with Walgreens likely hoping to sell it to private equity once the UK economy recovers next year.

“The better overall business performance and improved earnings clearly reassure Walgreens of the need to retain the business, but I wouldn’t get carried away by its prospects,” he adds.

“It’s a trusted brand with growth opportunities in healthcare, but it’s mature, with too much space and facing stiff competition.”