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A look at a key feature of Boots' business

What happens when you find your key markets being squeezed by the largest supermarket retailers, your plans for new products in new growth markets in tatters and your major shareholders needing 'guidance' over the future profitability of the company? In Boots' case you take action across a whole swathe of your business activities:

• Cost cutting
• Price discounting
• Store renewal and refurbishment
• Focus on core activities
• Roll out low cost model of overseas business

Each of the above is underway or has already been acted upon since 2003 at Boots. A closer look at each of these policies shows not only how great the threats are to Boots' core business, but also the seriousness with which the danger is viewed.

• Cost cutting
  The company set up a plan called 'Getting in Shape', aimed at saving £100 million by 2005-06. Three thousand jobs have been cut or are planned to go. One thousand jobs went from a Boots factory in Airdrie, Scotland; seven hundred were cut when Boots' beauty salons were shut down; fifteen hundred either have gone or will go by 2005 in human resources, finance and I.T. at company headquarters in Nottingham. The redundancies are part of a plan to save £100 million in business costs.
• Price discounting
  Christmas 2003 saw Boots making large price cuts in its 1300 stores in a 'three-for-two' promotion. Further discounts to the value of £40 million have been planned for 2004.
• Store renewal
  Following the appointment of a new Chief Executive, (Richard Baker, formerly of supermarket chain Asda-Walmart, who took over in September 2003), there has been a new emphasis on improving the basics of Boots' high street retail effort.
  Baker found that simple but important things like keeping shelves stocked and handling point-of-sale (POS) transactions effectively, were not being performed well at the stores. As well as modernising its I.T., the Boots stores are expected to open for longer and on Sundays.

The process of store renewal has meant the closure a large Boots store (above) in Bristol, to be replaced by a smaller, smarter version (below) one street away.

• Focus on core activities
  Boots' forays into niche markets such as its Wellbeing beauty treatment centres, as well as its ownership of car and bike accessories store, Halfords, have been abandoned. Under the threat of new competition, the firm has decided to focus on its core activity, running the Boots the Chemist retail business.
• Low cost model of overseas business
  In keeping with many U.K. retailers, Boots has tried to break into new markets in continental Europe and beyond.
  Typically, there are three main ways to expand into overseas markets:
  1. Open identical stores to those in your domestic market
  2. Take over an existing retailer in your target market and trade under their name - strategy used by Sainsbury supermarkets in the USA (see Sainsbury business profile)
  3. Licence the sale of your products to an existing retailer in your target market.
  Boots has tried the first of these options, but has retreated from this strategy after finding it too expensive. Instead, it plans to use the third option, which appears to be less risky, as it involves no upfront set up costs. The firm already has a similar relationship with a retail chain in Hong Kong and Taiwan, and now plans to do the same in the U.S. market.

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