A lesson for all those bent on expansion

SO Boots has finally admitted that the time has come to draw a line under one of the unhappiest episodes in its history.

In June 2000, chief executive Steve Russell admitted that Halfords, selling bikes and bits for cars, scarcely fitted in with a group that makes the lion's share of its money from dispensing prescription drugs and serving shampoo and suncream to the nation. He told Financial Mail: 'We certainly wouldn't buy Halfords now... If the right offer came along, we would listen.'

Russell then backpedalled furiously, insisting that no, no, Boots was terribly committed to Halfords and that he was perfectly happy to hold on to this marvellous business, despite the incongruity of its position with the group as a whole.

Until last week, that is. After an eternity of dithering and double-speak, Boots said that it would, after all, be happy to offload it. Halfords is a remnant of one of the most foolish and financially damaging moves that Boots has made in its long and distinguished history. Some 13 years ago, under the chairmanship of James Blyth, the company decided that running a chain of chemists was far too boring, far too limiting. Hence, it paid £900 million to buy Ward White, a group embracing Payless DIY stores, High Street wallpaper and paint shops - and Halfords.

The timing could not have been worse. The housing market was about to go into a nosedive. Boots proved itself to be pretty incompetent at running the whole shebang. It lost a fortune.

The parts were offloaded with varying degrees of clumsiness. Boots swallowed a string of writedowns and write-offs. And eventually, from that £900 million-worth of Ward White, only Halfords was left.

Yes, the business was eventually coaxed to a reasonable level of profitability. But frankly, Halfords has never ceased to look a bit silly and absurd sitting uncomfortably under the Boots umbrella.

By coincidence, the business of offloading the parts of Ward White brought Boots into direct contact with WH Smith, another company that has had its fair share of unhappy attempts at diversification.

Just as Boots was waking up to the fact that Payless was being squeezed to death, Smiths came to much the same conclusion about its own DIY business, Do It All. They were merged into a single joint venture. (And as it happens, even as a joint venture, the operation never took off. Boots eventually took full control and subsequently conceded defeat, offloading the entire business at a socking great loss.) It was WH Smith, remember, that last week saw its share price tumble - on the same day that Boots prepared to bid farewell to Halfords - as it revealed that its profits had been hit by a painful write-down in the value of its American business.

And the lessons to be learned from all this? Well, first things first. Let us applaud the fact that Boots has finally had the courage and good sense to say that it will get rid of Halfords. It is a welcome move.

But the far more important point is this: Boots and WH Smith are perfect examples of companies with fine, long-established core businesses - running chemists and running newsagents - but from time to time each has been seized with a bout of corporate madness that dupes the directors into thinking they really must do something else.

A man who used to be intimately involved with one of these companies put it beautifully recently when he said that WH Smith and Boots are companies where the executive directors should be forced to work no more than three days a week. That would allow them just enough time to keep things ticking over properly, but deny them the opportunity to think up new and ever more stupid ways of wasting their shareholders' money on fated attempts at diversification.

AND on a related theme, dwell for a moment on the fact that so many of the companies now queuing up to join the stock market are retailers.

We really shouldn't be too surprised. After all, retail sales have been sprinting ahead. Look at the recent figures from Marks & Spencer and Arcadia. Look at the official retail sales figures, which showed that weekly spending was, on average, 6.3% higher than a year earlier. We haven't seen a boom like this since Nigel Lawson was in charge at the Treasury

Call me cynical if you will. But isn't this the perfect time to be asking investors to put their money into shops? In the current environment, making money as a retailer is easy.

Investors are going to be presented with some plausible and beguiling business stories over the coming months as companies seek stock market investors. They will be well advised to listen to such stories with scepticism, if not cynicism.

Not only do some of the businesses now lining up for flotation look rather frailer than some of the hype suggests. But most important of all, no one, but no one, should expect the High Street boom to last for ever.