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Boots: the inside story of a high street giant in crisis

This article has an estimated read time of nine minutes

Andrea Norman started working at Boots, the high street chemist, as soon as she left school. Every autumn, she books her entire annual holiday, in one go but not because she is super-organised.

“They make us do it almost a year in advance,” said Norman, who is now 31-years-old and currently training to work in a support role in one of its pharmacies. The chain’s holiday policy makes it harder to get time with family or special occasions. “I’m quite used to it, I’ve never known any different.” Another employee lost a £250 deposit on a holiday because it was not approved on time.

In February disgruntled staff, including Norman, not her real name, launched a petition via Organise urging Boots to come up with a fairer way to book their breaks. The campaign has since attracted 5000 signatories. Boots said it would fix it but six months later employees say they have not had an update.

Boots said: “At Boots we have never had a policy that requires annual leave to be booked one year in advance.

“We typically ask for six months’ notice but recognise that it isn’t always possible to plan holidays that far ahead. Our pharmacists can keep two weeks of their holiday allowance back to book at a later date throughout the year.”

This only applies to healthcare staff and pharmacists, it added.

The antiquated system resembles most of Boots’ stores: 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. The cracks are starting to show despite the efforts of its affable boss Sebastian James, only one of a few from outside of the pharmacy profession to run Boots in its 170-year history, to nurse the business back to health.

Boots is in its most perilous position for decades

Near decade-low profits

The high-street chain last month said 200 of its 2,500 stores would face the axe and it sacked 350 staff at its Nottingham headquarters. Last year, operational profit slumped 22pc to a near decade-low of £391m. Turnover edged down slightly from £6.9bn to £6.8bn as the retailer started to feel the burn that has been crippling other high street rivals, and nimble online players breath down its neck.

“It depends how you define [the] success [of Boots]. If it’s creating massive cash for the people who own it, then it’s been tremendously successful. If success means leveraging the potential it’s got due to its uniqueness, then it has massively failed to deliver,” said veteran retail analyst Richard Hyman.

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.

Recently it has started offering more services, such as urine tests and flu jabs, which could 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.

However, finding people that want to work at one of the UK’s best known high street names is not as easy task as it once was, current staff claim.

“No one wants to work for Boots it seems,” a Boots dispenser said. “You have vacancies permanently online [in pharmacy] and no one will apply because the money is crap considering what you actually have to do.

“Pharmacists are supposed to do travel vaccinations, checking prescriptions, talking to the customers.”

Boots stores have been accused of being stuck in the past Credit: Topical Press Agency/Getty Creative

It also has a decent slice of the beauty market, one of the few growing areas in retail. However, Boots’ health and beauty arm has been in steady decline since before the financial crisis, with the trend picking up in the last three years.

Its market share dropped from 23.2pc in 2007 to 18.6pc in 2019, industry figures showed. It has ceded terrain to discounters, supermarkets and online players, such as Amazon’s PillPack and Pharmacy2U.

An industry source said: “If they had been smarter and put a little bit of investment in, why would anyone have seen an opportunity to set up an online prescription service? Boots should have been right there dominating from day one.”

James, who made his career at Dixons Retail before he merged it with Carphone Warehouse in a £3.8bn deal, knows this.

New products, old problems

Since joining last September, the 53-year-old Etonian has been overhauling its three main businesses – pharmacy, beauty and well-being. He has opened a flagship store in Covent Garden to test new ideas, which costs £3.3m a year in rent, and has been adding beauty brands apace to its stores and online, including Rihanna’s Fenty, which was seen as a massive coup.

Posh retailer Havery Nichols had been the only shop to sell it in the UK. Customers are now able to use its popular points loyalty card on their phones too.

However, one trainee pharmacy technician, said: “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.

A spokesman for Boots said: “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.”

James has so far refused to say how much money the retailer’s American owner, Walgreens Boots Alliance, is willing to put in to help lure back the shoppers it urgently needs.

“Because we’re such a big chain, we invest a lot of money already. But we have a lot more to do. Is it going to take some time. If [the new stores] do well, I wouldn’t be worried about the ability to raise capital,” James said two months ago.

Some critics have questioned his ability to effect change at Boots after his successor at Dixons, Alex Baldock, launched a scathing attack on James’s tenure saying he’d found “plenty to fix” following a profit warning.

Later Dixons uncovered the biggest data breach in UK history, nearly a year after it had started, which had gone unnoticed under James. Around 10 million personal records and six million credit card records were exposed, but no bank details taken.

“I’m pretty satisfied with the shareholder returns that I generated during my period. I don’t have any insecurity on that front. Secondly, I think Alex was trying to show an appetite for change and that’s OK,” James said.

“We spent a fortune on IT. We spent a fortune on information security. Any business that doesn’t is crazy. No matter how many alarms you put on a house to prevent a burglar … if they get in and don’t steal anything then that’s OK.”

One headhunter said that James, who loves taking selfies with staff, is one of the few bosses who may be able to rally the troops at Boots.

He has been bolstering his top team, having poached Tesco’s convenience managing director Tracey Clements to be chief operating officer as well as David Hobbbs, the grocer's strategy director. 

Sebastian James record at Dixons has been lambasted by his successor Alex Baldock Credit: Heathcliff O'Malley

The Pessina effect

Most shoppers are unaware that the chemist has been part of the global juggernaut Walgreens for the past five years or that its arch boss is Stefano Pessina, a 78 year-old Italian multi-billionaire, who turned a family business from the back streets of Naples in Italy into a £100bn drugs giant.

Since gobbling up Boots in 2014, Walgreens has paid out £7.6bn in dividends. Pessina, however, has pointed out that the chemist had to sell chunks of the business to appease shareholders when it was public, something that hasn’t happened under Walgreens. Plenty of money has been reinvested too, he said.

Boots, which traces its roots to John Boot’s first Nottingham store in 1849, now employs 56,000 people. In 2005, Richard Barker, its then chief executive, stunned the City with a £7bn merger with Pessina’s AllianceUni Chem, ending more than 150 years of the British chain’s independence.

Just two years later, Pessina took the business private in a £11bn deal backed by Kohlberg Kravis Roberts. The takeover left Boots lumbered with £9bn of debt.

In June 2008, its headquarters were moved to Zug, Switzerland. According to John Ralfe, Boots’ former head of corporate finance, “the UK lost about £100m a year in tax as result”.

KKR’s Dominic Murphy, who now sits on Walgreens’ board and no longer works for the private equity firm, was instrumental in orchestrating the acquisition.

Stefano Pessina has forged a reputation as a ruthless dealmaker  Credit: Andrew Harrer/Bloomberg

He then helped Pessina and KKR sell a 45pc stake to Walgreens in 2012 in a £4bn deal, and the remaining 55pc in 2014 for £6bn. The buyout firm eventually made £4.5bn – 4.5 times its initial investment.

Just last week, Walgreens said it was shutting 200 stores in the US too in a bid to save more than $1.5bn (£1.2bn) in annual costs by 2022. In April it said it had its “most difficult quarter” since its merger five years ago, with sluggish sales in the UK partly to blame. Cheaper generic drugs and a squeeze on prescription drug prices have also started to weigh on profits.

The lieutenants calling the shots

Although Pessina is Walgreens’ vice-chairman and chief executive, he has two key lieutenants doing the heavy lifting: Alex Gourlay, 59, a Boots lifer who climbed the ranks and shares the co-chief operating officer title with Ornella Barra, 65, Pessina’s long-term partner.

At Walgreens annual meeting with shareholders in December in Deerfield, Illinois the board decided that although Pessina, Walgreens largest shareholder, was “older than the retirement age” he should stay put. With an estimated wealth of $10bn, he could easily put his feet up. 

Some former Boots UK employees have said that Barra, a pharmacist who set up her own distribution company in Italy and merged it with Pessina’s company in 1986, is calling most of the shots in the background.

Their enlarged company became one of the fastest growing pharmaceutical wholesalers in Italy. Italian staff call the power-couple Dottoressa and Ingegnere – “the doctor and the engineer”. Pessina trained as a nuclear engineer.

They have a home in Monaco, where they keep a low profile although they do go out to enjoy the opera.

Barra recently said: “Stefano is one of the best deal makers, if not the best. He is the architect and I am the engineer.”

She said she was “extremely passionate about what I do, but this often means I am very demanding of myself and my team. I am a perfectionist and hold high standards for both myself and those around me.”

The biggest challenge for James will be to convince his superiors in Illinois that his vision can prevent Boots from becoming the next big name to succumb to the brutal conditions on the high street.