Boots reduces investment. It will close stores. It may have to face another complex corporate restructuring.
Boots should have a great decade, as the NHS is in a constant state of crisis. People are taking more responsibility for their medications and they’re also becoming more interested in healthy lifestyles. Boots remains the UK’s largest pharmacy chain. Walgreens in the US has made a mess of things.
Why would anyone be surprised? Foreign ownership of British retail brand has a disastrous track record. Walmart’s acquisition of Asda failed.
Debenhams was never able to recover from the takeover of its private equity fund by American investors. Hamleys did not thrive under foreign ownership, and the future of Morrisons is less than optimistic.
The British retail market requires a lot of local expertise, deep roots within the UK, and flexibility that only comes with management based in that country. Boots will be better off for all if it is returned to British control as soon as possible.
The 2020s will be a great decade for pharmacy chains. The overburdened healthcare system means that pharmacists are treating more minor ailments than doctors. In the same way, more and more medicines are being sold over-the counter.
We all take our health seriously and buy vitamins, diet beverages, or anything that can improve our fitness. In a country where 14pc are gym members and 79pc say they take their fitness seriously, a drug store can’t do badly.
Walgreens Boots Alliance is the result of the merger between the American and British chains. Walgreens reported a $3.1bn net loss last week (£2.6bn) compared to $5.5bn the previous year. While a large part of this was due to a charge related with settling opioid claims, it does not bode well for Walgreens’ business in general.
Boots, however, was the top performer. Sales across the entire chain were up 12pc from last year and even beat inflation. Walgreens, however, said that it planned to cut capital spending by $600m and carve out a total $1bn from its cost base.
The company announced that it would close 300 stores across the UK because they were too close together. There may be further cuts in the future.
Boots shares are now trading at a fraction of what they were when the original deal was struck in 2014.
It is the latest in a long list of foreign firms that have ruined British retailing. Walmart, the largest retailer in the World, bought Asda in 1999 for £6.7bn. However, it never made a profit from the deal and eventually sold to TDR Capital and the Issa Brothers in 2021.
In 2006, a consortium consisting of CVC, Texas Pacific, and Merrill Lynch Private Equity acquired control of Debenhams, but in 2019, the chain had gone into administration.
Hamleys, a well-known toy retailer, has been owned by Icelandic, French and Indian owners for the past two decades, with little success.
Brazil’s Natura is cutting back on The Body Shop. The Australian-Thai group that purchased Selfridges reported losses of over £100m on Friday.
It is difficult to be optimistic about Morrisons’ future under the American private equity company Clayton, Dubilier & Rice in a market that is becoming more and more competitive. This list is endless.
There are some foreign chains which do well in Britain. Ikea or Zara, for instance. The British chains are notoriously expensive and anyone foolish enough to try it will always regret their decision.
Three major problems exist.
To be successful in retail, you need to have a good deal of local knowledge. Mike Ashley, the owner of Sports Direct, or Sir Philip Green, former owner of Arcadia, are not very likeable. There is no doubt that they are familiar with the high street and what sells where. This kind of knowledge is hard to duplicate.
It is important to have a strong presence in the country you are trying to succeed. Next, B&Q, Kingfisher or Tesco are all UK-based retail companies. They may also have some operations overseas, but their main focus is on the UK.
Lastly, the management must be in close contact with the market. Retail is all about the details, as an old cliche goes, and this proves to be true. The headquarters of a company can’t fine-tune the shops in a chain from thousands of miles away. And no matter how much companies claim to delegate to local managers, there will always be some interference. The team on the field is never given any autonomy.
Walgreen tried to sell Boots before, but was unable to get the price they wanted. Now, it is reported that the company will instead be considering a possible demerger. This should be done as soon as possible for the sake of the business.
This marriage is proving to be a very unhappy one for the company, its employees and its shareholders.
We don’t need to give any more examples of how foreign ownership doesn’t work. The high street can also not survive many more failed takeovers.