Boots profits down in face of competitive retail environment

Despite the tough trading conditions on the UK high streets, Boots said that its Beauty division continued to perform well, especially compared to its other operations. Although overall turnover for the group for the year to March 31, 2005 was up from £5.32 billion in the previous year to £5.46 billion, group operating profit were down from £550.1 million to £501.7 million.

Referring to the investments that the company has put into its operations over the past year and the impact that it had on the bottom line, Boots​ chief executive Richard Baker said: "This was a vital investment to make sure that Boots can compete in the future. The old economic model, with Boots The Chemists trading on margins of up to 14 per cent, was not sustainable. With the negative headlines that surrounded our performance in the last quarter of the year, it is important not to lose sight of some important facts. We have continued the top line sales momentum in spite of a difficult market. We had our third successful Christmas on the trot. And our margins, at 10 per cent, are still above almost all our high street rivals."​

Baker also made reference to the fact that the company had continued to grow in both health, beauty and even in the highly competitive toiletries segment. He stressed the fact that healthcare still accounts for 50 per cent of the company's turnover, but also said that the company's Beauty division continued to grow in importance.

Looking specifically at the results of the Beauty division Baker stressed the success of the relaunch for the No. 7 cosmetics range, which led to a 20 per cent increase in sales. He also emphasised the success of the company's increased move towards premium brands, emphasising this with the number of new contracts that have recently been signed with brands representing this category. Toiletries, however, remain one of the biggest areas of challenge for the company, as European-wide, the market remains saturated and extremely competitive, with aggressive discounting driving margins constantly downwards.

"The toiletries market remains as competitive as ever and a lot of our investment on price has been here,"​ Baker said. "This is part of the reason why our performance has picked up. Growth up 0.1 per cent reflects the deflation in the market and represents held market share. A key factor in our performance has been our management of product mix with a greater emphasis on own-brand and exclusive ranges. In particular, we enjoyed success with a relaunch of our Soltan sun care range as it regained the number one position in the market."​

In a highly competitive UK retail environment Boots analysts and market experts generally consider that Boots has done well to maintain its current position. However, with competition in the beauty and toiletry categories showing no sign of abating, the year ahead looks just as challenging for the retailer.