Boots can offer a winning formula in the US
Despite High Street gloom and a looming threat from Amazon, bosses of drugstore chain insist . . .
It feels incongruous to be in a drugstore in Deerfield, Illinois, and to see shelves of Boots No 7 creams, those most quintessentially British of beauty products.
Most people who shop in Boots in the UK – and that’s eight out of ten of us – have no idea that the pharmacy chain has for the past five years been part of a £37bn transatlantic giant, Walgreens Boots Alliance.
the company, which is listed on the Us stock market, has its headquarters in Deerfield, a suburb about 45 minutes outside Chicago.
Converting American women to the anti-wrinkle properties of No 7’s cult Protect & Perfect serums and the soap & Glory skincare range is just one of the ambitions harboured by stefano Pessina, the 77year-old chief executive.
the Italian billionaire, who started his career after taking over a small family pharmacy business in Naples, bought Boots in 2006 with private equity backing and merged it with Walgreens in a £16bn deal in 2014.
Pessina – whose 65- year- old partner Ornella Barra is co-chief operating officer – has a phenomenal track record but makes no bones that, recently, times have been tough.
He warned last month that Walgreens Boots Alliance had just experienced the most difficult three months since the merger, due to weak sales on both sides of the Atlantic.
the company slashed its profit forecast and the shares are down 22pc this year so far, at a time when the s&P 500 index of leading Us shares is up strongly.
As Alex Gourlay, 58, the scottishborn co- chief operating officer, said: ‘We clearly need to improve.’
WAlGreeNsBoots Alliance is being hit on several fronts. In the UK, where former Dixons Carphone boss seb James is at the helm, it is suffering from a cocktail of familiar woes on the High street: hefty business rates and online competition among them.
sales at Boots, which has almost 2,500 stores, fell by 1.3pc in the most recent quarter. Operating income was down by 22.6pc and gross profit by nearly 9pc.
In the Us, profits and sales were down because of a fall in generic drug prices and because, like its rivals, Walgreens was hit as pharmacies are receiving less money in reimbursements when they dispense
prescriptions. It doesn’t help that Amazon has its tanks on the lawn – it bought online pharmacy Pillpack, which delivers drugs through the post, for £760m last summer.
Gourlay, who oversees Walgreens and Boots, is not taking the setback lying down. the plan is to fight back through cost savings, with the aim of cutting £1.2bn a year by 2022. In addition, he wants to drive improvements in the business through digitisation along with better service and products for customers.
In the UK, James is overhauling stores and opening new beauty halls, including a flagship in london. the company is also bringing No 7 and other brands to the vast Chinese market through the launch of a flagship online Boots store on tmall Global, a platform run by ecommerce giant Alibaba.
the idea is for Walgreens Boots Alliance to become a ‘mass specialist’ delivering healthcare to large numbers of people around the world. ‘there are three platforms that will survive in most market places,’ says Gourlay. ‘there are the mass retailers, such as tesco, Walmart or Carrefour; then there are the new retailers, such as Amazon, and finally the mass specialists, which is where we want to be.’
the Walgreens store in Deerfield is a bright, airy space but, despite the No 7 products, is very different from Boots – for a start, there are shelves full of booze and supermarket foodstuffs.
‘there have been some ideas exported from Boots,’ says Gourlay. ‘We have no ambition to copycat Boots here, as that isn’t right, but some of the philosophy about health and beauty is really similar.’
traditionally, the Us market divides into premium beauty brands sold in upmarket shops, and very cheap cosmetics in drugstores. so mid-market offerings such as No 7 have scope to grow.
the Deerfield store has an optician and hearing care. there is also a ‘feel More like You’ facility for people who have had cancer, helping them find the best wigs or hairpieces and make- up tips about how to draw on eyebrows lost to chemotherapy.
Walgreens is embarking on a number of partnerships that will allow it to experiment with new directions. these include a venture with supermarket group Kroger to sell its goods in a number of stores in Kentucky.
It has also embarked on a sevenyear partnership with Microsoft, with the aim of using apps, data and new technology to help deliver cheaper and better personalised healthcare. It has also done a deal with Verily, a Google company, initially aimed at helping people to take their pills as prescribed. the company will work with Verily on other projects aimed at helping people with chronic conditions, and on advanced technologies such as sensors and software to prevent, detect, and manage diseases. THere
is speculation that Pessina might be eyeing his next big deal and that he will emulate rival Us drugstore CVs, which last year sealed a £53bn merger with health insurer Aetna. No doubt Pessina would be open to doing a similar transaction at the right price if an opportunity arises.
Boots has come a long way since its founder, John Boot, started selling herbal remedies in Nottingham in 1849, but it is facing one of the most challenging periods in its long history.
Its Italian boss, who colleagues say, despite being in his eighth decade, still works harder than anyone else, is dispensing some strong medicine.