Old brands, new rules in High Street

LOOK around at what remains of the publicly quoted retail sector and there are an awful lot of high-profile people, if not exactly on borrowed time, then certainly on probation.

There's Kate Swann, parachuted in to rescue WH Smith; Stuart Rose at the helm of Marks & Spencer, who has a 400p-a-share marker under him after Philip Green's bid; Justin King with the mighty task of turning round Sainsbury's; and Richard Baker, charged with reviving the hugely undermined Boots brand.

Consumer spending may be slowing in response to higher interest rates and, clearly, shoppers now want quality at a bargain price.

However, the real problem facing the probationers is that they are in charge of what used to be prestige brands that have not only lost the trust of their customers, but are confronted with formidable new competitors setting new rules. Only ten years ago, Tesco lagged far behind Sainsbury's, for example. Only recently, Rose admitted that Next would soon make more profits from womenswear than M&S.

The story of Boots, which this week unveils a trading update, is a textbook study of how a High Street titan can throw it all away and be left with years of playing catch-up if it is not to confront extinction. This, like several of the above, was a family company with a proud history stretching back a century or more.

Its reputation was built on providing value. When it had to accept a lesser profit to service core customers, such as selling packets of nappies to new mums, it did so knowing it could flog a little girl's dress and make a turn on that.

What is remarkable, however, is that at one stage, Boots became so divorced from its mainstream shoppers that it actually stopped selling nappies. It simply handed the enormous mum and baby franchise to anyone else who wanted it.

Under its previous management, prices were allowed to edge up each year until even employees with their 20% staff discount found it cheaper to pop down the road to Superdrug or Wilkinson.

The stores were bled of investment and looked tired and tawdry. The tills were old-fashioned, so paying by plastic was time-consuming and many people simply gave up and left their baskets on the floor.

Add to that the fact that shareholders' money had been frittered away on things that looked good at the time - like Botox injections, dentistry-and laser eye treatments, but which never had a hope of making money - and it is little wonder the 15m people a week who shop at Boots were planning to defect.

At the basic level, retailing is about three things: having the right goods on the shelves, providing them at a fair price and offering shoppers an efficient checkout service.

Baker has set about dealing with the price issue and has reduced the cost of about 2,500 items. He is also nearly halfway through a revamp of the company's IT systems.

More than 1,000 tills have been upgraded and he is spending on the stores. He is now tackling the supply chain to make deliveries to stores on a little-and-often basis. Remarkably, Boots still carries about ten or 11 weeks' stock. This is inordinately wasteful and working capital could be reduced by about £30m for every week lopped off this total. He has also hacked down the headcount at head office.

A start has been made, though this week's like-for-like sales growth figures may not match the 4.4% achieved in the first quarter. Baker believes there's another two to three years to go before real results show.

He has been in situ longer than most of the other probationers. So far, though, he's showing them a clean pair of heels.

THE Financial Services Authority's impending regulation of the mortgage market, which starts next month, is a dabble too far. In theory, it makes great sense. With general insurance coming under the watchdog's umbrella early next year, we will have one regulator overseeing the vast majority of financial services, from dodgy advisers to ailing investments, broken pensions and now mortgages.

But in practice, the mortgage market does not need the heavy hand of the FSA. It is fiercely competitive and largely scandal-free. The FSA's intervention will merely add to bureaucracy - piling up more paperwork and, of course, cost.

Also, the FSA's new rules are riddled with inconsistencies. Buy-to-let mortgages will fall outside its ambit, which is mad in view of the risks these loans pose for many amateur landlords. And unless mortgage advisers contact a borrower at least once a year, the FSA's regulations will bar them from re-establishing contact if, for example, a special loan comes to an end. That, in the eyes of the FSA, will be deemed to be 'cold calling'.

Crackers? Of course. But then this is the FSA.