When Walgreens Boots Alliance (WBA) warned in April that it was going to be “more aggressive” in its transformation plans, alarm bells started ringing with landlords either side of the Atlantic.
After the “most difficult quarter” since WBA’s conception five years ago, boss Stefano Pessina warned he was “accelerating the digitalisation and transformation” of the pharmaceutical titan and reviewing its store portfolio.
Although it offered no details at the time, this week Boots, a stalwart of the UK high street, was reported to be reviewing the future of more than 200 of its shops – a figure that equates to around 10% of its portfolio.
Boots insists it does not “currently” have a major store closure programme planned but admits it will “seek out opportunities for consolidation”.
In doing so, the health and beauty operator has become the latest in a string of retailers to actively reshape its bricks-and-mortar presence as it adapts to changing shopper habits.
Retail giants including Marks & Spencer and Dixons Carphone are already closing around 100 stores each, while other big names such as Debenhams, New Look, Mothercare and Carpetright have resorted to CVAs to right-size their portfolios.
But what does Boots – a brand found on most high streets – closing stores mean for the future of the high street?
“Boots is a big draw. There’s a reason to visit, because people go there for the convenience of products like medicines,” Paphitis tells Retail Week. “I don’t think people realise how important that is. It’s another draw that’s disappearing from the high street.
“That 10% of their estate is a lot more significant, because whether it’s small shopping centres or high streets they draw people there. That’s going to be devastating.”
Kate Hardcastle, founder of retail consultancy Insight With Passion, says it is “understandable” that Boots is looking to close stores, particularly in locations where it operates two or three stores in close proximity to each other.
Boots store estate by region
|Region||Towns with two or more Boots stores||Total towns with a Boots store|
|East of England||25||81|
|Yorkshire and the Humber||22||51|
Source: Local Data Company
However, she suggests the business has failed to make the most of its health-and-wellbeing offering such as pharmacies, opticians and hearing centres, which offer services that can’t be delivered online. “They haven’t done anything to set those departments alight,” she says.
Hardcastle fears the removal of Boots from certain high streets and shopping centres will have a negative impact on the fortunes of neighbouring retailers.
“When brands come out of towns or high streets, it has a knock-on effect to the retailers close by. So if you lose a BHS, it has a shadowing effect on stores around it. We’ve seen that and we’ve seen closures because footfall has dropped.
“We know that Boots – because of the pharmacy and the lunch offer – drives footfall, particularly around lunchtime. We need to know how that will that impact the stores around it and how place-makers and councils should support other retailers that will be affected by its consolidation.”
Call for government intervention
While local authorities can help at a micro-level through measures such as offering free parking or creating more community spaces, retailers have reiterated their call for government intervention on a wider scale to prevent further store closures.
In a rare interview on BBC Breakfast this week, WHSmith boss Steve Clarke argued that many of the high street’s problems have been caused by the costs involved with operating stores.
“The biggest cost that we face as retailers is business rates,” Clarke said. “Often, our business rates, in some locations, are higher than the rent that we pay. That just can’t be right.
“Many of the businesses that have disappeared from the high street over the last two or three years have been very clear about the pressure that business rates have put on them and, in effect, we have actually taxed some of the UK’s retailers out of business. That’s one of the things that needs to change.”
“The government are not making any difference. Legislation is falling behind the technological revolution”
Paphitis, who has long voiced his concerns around business rates, echoes those sentiments – and argues that the government effectively has “one foot on the throat of physical retail” as a result of its “comical” efforts to tackle the tax headwinds facing bricks and mortar.
“There has to be a government that listens and acts and believes in doing something,” Paphitis says. “Every initiative has been quite comical. They’re not real, they’re sops to pretend they’re doing something about it.
“The government are not making any difference. Legislation is falling behind the technological revolution. They’re not making the effort to collect tax in a fairer way.
“The physical retail cake is decreasing. The government is increasing tax on a decreasing part of the cake and the increasing part [ecommerce] is not being taxed. It’s ludicrous.
“I’m not saying penalise online but work out taxation fairly across every sector then we’ve got an opportunity to allow everyone to flourish.”
No let-up for landlords
But with businesses the scale of Boots, M&S and Dixons Carphone streamlining store portfolios in response to the challenging environment, it is not just retailers at risk.
Poundland boss Barry Williams harbours concerns around the impact that store closures and CVAs are having on property companies – at a time when the relationship between the retail and landlord community appears to be improving.
Only last week, credit rating agency Moody’s warned that retail’s “challenged profitability will negatively affect the use of real estate” in the sector, sparking falling property valuations and increasing loan leverage among landlords.
“What we need is a strategy for the secondary locations, which may well involve residential”
Steve Clarke, WHSmith
Major shopping centre owners including Intu and Hammerson have already suffered sharp write downs in the value of their assets. The former, which owns malls including Lakeside in Essex and Gateshead’s MetroCentre, reported a 12.9% slump in the value of its properties to £9.17bn in 2018, while the value of Hammerson’s UK portfolio tumbled 9.3% during the second half of 2018.
“Making sure we have landlords that are in a healthy financial position is important to us – and it should be important to all high street retailers,” says Williams.
Poundland is one of the few retailers that has not only managed to maintain its store portfolio, but is seeking to expand. The value operator opened 20 new stores in units previously occupied by the now defunct Poundworld during the six months to March 31, the majority of which are in non-prime locations.
Clarke believes those parts of the UK will become even more challenged in the coming years, suggesting there will be “more polarisation between very successful, attractive high streets in prime locations, and secondary high street locations with very high vacancy rates”.
He urged: “What we need is a strategy for those secondary locations, which may well involve residential.”
As Boots joins a growing list of retailers reviewing its position in these regions up and down the UK, the need to action such a high street blueprint is increasingly urgent.