UK pharmacy and beauty chain Boots is being squeezed from all sides of the beauty battleground and this week’s opening of trendy global beauty retailer Sephora’s first UK store will apply extra pressure.  

Yet the company has much potential for growth in both health and beauty this year, including the opportunity to take advantage of the alleged risk of closure of Lloyds Pharmacy’s 1,300 UK sites that are under “strategic review”. 

Boots UK boss Sebastian James has set out a strategy that is laser-focused on modernisation – revamping stores and upping Boots’ digital game to ensure brand relevance. 

It had a strong start to the year and grew market share for the seventh consecutive quarter. But with internationally strong competitors like Sephora returning to the UK to challenge Boots on its home turf, how can it build on that momentum to ensure long-term success? Our analysts explore five ways.  

1. Chasing sustainable growth 

Boot’s financial performance in recent years had faltered amid mounting competition and the retailer was slow to adapt to a quickly changing market.  

However, James’ transformation plan was accelerated by the pandemic, with a cost-cutting drive that included the closure of almost 50 opticians in mid-2020, and by the retailer upping its fulfilment game and working to expedite its digital innovation.  

Efforts to modernise are starting to show through with a 2.3% decline in sales to £5.81bn for the year ending August 31, 2021 (2020/21), a marked improvement on the 10.8% fall the previous year. Full-year results for 2021/22 have not yet been filed with Companies House, but US-based parent company Walgreens Boots Alliance (WBA) reported four quarters of robust year-on-year retail growth for the UK retailer. 

* 2021/22 is a Prospect estimate. Boots UK Limited is due to file by end of May 2023

 

Boots reported an encouraging start to the current financial year, with sales up 4.3% for the three months to November 30, 2022, as shoppers returned to stores. Its retail like-for-like sales increased 8.7%, buoyed by a strong focus on value and a record Black Friday.  

Profitability, which had been impacted by heightened competition and heavy promotional offers, as well as falling sales and higher restructuring costs, has improved recently too. Pre-tax losses for Boots UK Limited reduced to £58m for 2020/21, from a £287m loss the previous year. 

 

A Boots spokesperson said: “The true performance of Boots UK in 2020/21 must take in to account the three main Boots UK entities – Boots UK, Boots Company and Boots Management Services – with operating profit reconciled on an underlying basis. Boots’ total underlying operating profit for 2020/21 was £262.5m, versus £131m in 2019/20.”

On this basis, Boots’ pre-tax profit was £44.5m for 2020/21, compared to a pre-tax loss of £155.6m the previous year.

Making Boots more profitable is a key focus for WBA, after its attempt to sell the UK business fell flat in June last year. Having stated that none of the offers sufficiently reflected the value and potential of the chain, WBA committed to focus on Boots’ and sister business No7 Beauty Company’s “further growth and profitability”. 

The success of these efforts will require ongoing commitment and focus from WBA, but assuming that this is in place the company has a unique opportunity to now push ahead and accelerate its modernisation efforts.  

Prospect expects Boots’ UK sales to continue on an upward trajectory and move ahead of £9bn by 2026/27, driven by innovation, store revamps, estate right-sizing, the return of footfall to physical retail and ageing consumers’ growing healthcare needs. 

2. Gathering pace online  

While there is still ground to cover to bring its store estate up to date, Boots has gathered pace under digital director Paula Bobbett to replatform its online operations and introduce a radical, and much-needed, digital overhaul.  

Digital investment includes more than 25 major technical upgrades in the past 18 months to enhance efficiency, stability and customer experience. Sales through the channel doubled versus pre-pandemic levels for the first quarter of 2022/23, and accounted for 18% of total retail sales, with the retailer claiming Boots.com is the UK’s number one most visited health and beauty website.  

Flexible fulfilment is another strength of its online business, with Boots investing during the pandemic to create more hybrid stores to fulfil the online channel.  

Continuing to build on this momentum will be critical, since any missteps leave online share vulnerable to the raft of fledgling dynamic disruptors snapping at Boots’ heels, such as direct-to-consumer membership website Beauty Pie. Evidence of a more focused strategy came on Black Friday in November 2022, when Boots reported its biggest-ever day of digital sales.  

Boots Trend Report (3)

Boots dedicated its homepage to Rihanna’s Fenty brand around her performance at the Super Bowl 2023

Boots’ speedy delivery partnerships with Deliveroo and Just Eat are also helping it compete on rapid convenience for consumers, while its digital offer further expands its ecosystem through advice services such as Boots Online Doctor and Taboo Talk podcast.  

While still distinctively Boots, the retailer’s site is content-rich. Alongside money-saving deals and Inspire Me suggestions sits its Health Hub, which launched in 2021 and provides access to Boots’ healthcare services, as well as doctors, dermatologists and therapists. 

Product presentation is dynamic too. As global star Rihanna took centre stage during the Super Bowl 2023 half-time show, Boots.com’s homepage was dedicated to her Fenty Beauty brand, with users urged to “Shop Rihanna’s game day look“. 

Boots’ digital business remains a strategic priority and its online offer is set to grow through the launch of a curated marketplace this spring, giving it scope to bring on more third-party brands. It’s a move that rival Superdrug made at the end of last year, allowing the retailer to offer a broader range of products while reducing the risks and overheads that come with retailers holding their own inventory. 

3. Cashing in on the beauty boom 

The opening of Sephora’s first UK store ramps up beauty competition on the high street. Its Westfield London store features the sharp, cool design synonymous with Sephora, as well as a glut of trendy, must-have brands in an experiential-heavy environment combining “human touch and technology”.  

It’s an imposing proposition and, while Boots has physical scale on its side, the modernisation of its beauty offer will be tested given that beauty consumers are well-informed and notoriously one step ahead of brands. 

James admitted a few years ago that Boots had become less relevant to beauty customers and needed to get better and quicker at bringing “hot” new brands into stores. It has been a major focus of his turnaround plan, with nearly 170 beauty halls having been opened or reinvented over the past few years, including smaller-format beauty halls that house a rapid intake of a raft of cult brands.  

Boots launched 25 “new and cult” beauty brands during the 2022 financial year, making a total of some 500 beauty brands available, which the retailer claims is more than anywhere else on the high street. More than 250,000 customers are said to shop for beauty products at Boots each week. 

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This year Boots extended its Everyday range in a bid to offer affordable products to all

Consumers’ current value focus is also an opportunity for the retailer, which says that the ‘lipstick effect’ during tough economic times has held true in terms of sales of the cosmetic, but has also extended to other products. In December, it recorded three of its “biggest consecutive sales weeks ever in skincare”, as consumers sought “beauty indulgences despite cost pressures”. 

The retailer has affordability on its side and said its best-selling mass skincare brand for 2022 was its own-brand range, with one product selling every three seconds. This winter it joined the grocers in upping its value offer with its “biggest ever savings” through its extended Everyday range, Price Lock Promise and Price Advantage. 

4. Opportunity as a trusted healthcare provider  

Boots’ renown as a trusted high-street healthcare provider and ‘pharmacy-led’ health and beauty retailer will be critical to its ongoing success. Here it has real opportunity following competitor Lloyds Pharmacy’s shuttering of its 237 sites within Sainsbury’s stores, with more Lloyds’ sites reportedly under threat of closure.  

Boots quickly reached out to those employees affected by the 237 closures, announcing the availability of 1,500 pharmacy roles, highlighting its commitment to community healthcare but also a market-wide shortage of pharmacists. 

Boots’ pharmacies work closely with other primary healthcare providers and given the high-profile strain on the NHS, exacerbated by pharmacy closures elsewhere, the Boots pharmacy division – which accounted for 39.3% of the business in 2020/21, up on 34.8% pre-pandemic – is a key growth opportunity. 

 

Following up on its successful provision of Covid tests and vaccinations, Boots continues to deliver crucial healthcare resources including its winter flu jab service. Boots offers more than 100 healthcare services online and in store, and is keen to do more to relieve pressure on primary care. 

Reporting its fourth-quarter results in October 2022, it said demand for ‘pay-as-you-go’ healthcare services is accelerating and its Online Doctor is “now performing at scale with over 750,000 customers onboarded”. 

Innovating further, Boots trialled prescription medicine drone delivery in the Isle of Wight in mid 2022. Boots chief information officer Rich Corbridge said: “In this trial, we will be looking at how much time we can save, as well as how we can incorporate drones into our medicines supply chain to create economic efficiencies too. We want to prepare now for the wider use of this technology in the future.”

This future may not be too far off, in light of the development of a drone superhighway in the UK beginning next year.   

It is also taking a modern approach to underrepresented health issues that have been rising up the public agenda, such as menopause and gut health. 

As well as introducing a ‘Menopause Friendly’ symbol for relevant products, it launched the Menopause Bus in 2022 in partnership with ITV’s This Morning, which travels to cities to help change the way people talk about menopause. Additionally, the Boots and No7 Menopause Monologues saw six celebrities candidly share their experience of menopause.  

5. An estate fit for future growth  

Boots’ vast 2,200-strong store estate puts around 85% of the population within 10 minutes of a store. However, scale has made consistency challenging with some arguably tired-looking stores needing an urgent makeover of their own.  

Boots has been investing in upgrades, overhauling London flagships, opening better-located new stores and closing others. More of this work is needed and the group would do well to consider accelerating these efforts. 

 

Boots recognises the work that needs to be done with its stores and its Beauty Trends Report 2023 applauded the ‘hybrid high street’. It said: “From digital commerce to in-person shopping, being wherever our customers are and making their shopping experience seamless is the key to this trend.”

Its refreshed beauty halls provide an immersive, interactive environment where customers can try new ideas, find inspiration and get advice from beauty specialists. In-store QR codes take users through to related digital information.  

Although the retailer has more beauty hall overhauls in the pipeline for 2023, the scale of its estate means there is still ground to cover in its store reinvention with a number of its high street stores still crying out for investment.  

Recognising the advantage its physical clout provides over health and beauty pureplayers, Boots has also been using its stores as fulfilment hubs, and customers can order items online by 5pm and collect the following day from around 98% of the UK’s retail stores. 

Further connecting the physical and digital, Boots held its first IT Stores Day in March 2022, with an IT team visiting more than 320 stores across the UK to pull together a ‘store-centric’ 12-month IT plan. Store employees were asked what they need from technology to enhance the customer in-store experience.  

Decisions impacting consumers’ journeys across both stores and online are informed by Boots’ enviable data from its Advantage Card loyalty programme. From driving Boots’ Beauty Trends Report to the retailers’ investment in pricing – including Price Advantage, which gives holders access to lower price points – the data is crucial.  

 

Despite a short-term dip a couple of years ago, Advantage Card active membership has rallied – bolstered by its digitisation and integration across all main customer channels – and is once again in growth.  

Reporting on its fourth-quarter results in October 2022, Boots said celebrations of its Advantage Card’s milestone 25th birthday encouraged the “greatest number of sign-ups for three years”, with total active members now at 15.4 million, providing data that will help keep the business on the right track.