Boots and Smith ready to use the knife on Do It All

BOOTS and WH Smith are poised to announce dramatic cuts at Do It All, their troubled do-it-yourself chain, within the next few weeks. The 50/50 joint venture is to be pruned of poorly performing stores to try to stem its spiralling losses.

Last week, the two companies marketed parcels of Do It All stores to other retailers, including rival DIY groups. About 50 of the 220 stores could be sold or closed, threatening 1,000 jobs and costing up to pounds 50m in closure expenses and write-downs.

Sir James Blyth, chief executive of Boots, has come under pressure from institutional shareholders in the wake of the pounds 150m failure of the Manoplax heart drug project. He is all the more determined to show the City he is taking a tough line on the problems at Do It All because he is still several months away from a decision on the future of the demoralised pharmaceuticals division. Consultants are still putting that under the microscope to determine whether it should be sold.

An announcement on Do It All will be made on or before the Boots interim figures on 4 November, according to a source close to Do It All, who said: 'The bullet will be bitten.' Cuts would be 'radical', though details have to be worked out and will depend on interest from potential buyers. However, the chain will survive - at least until the expiry of the standstill agreement, which makes any ownership change before next summer very unlikely.

Boots and WH Smith have been encouraged by the stock market's reaction to Dixons' decision last month to cut its losses and sell Silo, its ailing US electrical chain. Since it bit the bullet, Dixons' shares have soared.

Do It All, the result of the ill- starred marriage of Boots' Payless chain with WH Smith's Do It All, is the smallest and weakest of the big three DIY multiples. Apart from the housing recession and price wars, which have hit the entire sector, Do It All has suffered from some poorly sited or inappropriately sized shops, and integration problems.

In the year to May it lost pounds 28.6m. Steve Russell, Do It All's managing director and former merchandise director at Boots The Chemist, has only recently returned to work after two months' sick leave.

Market share has shrunk from 6.7 per cent in 1990 to 6 per cent in 1991 and 5.6 per cent last year, behind Kingfisher's B&Q with 14.6 per cent, and Ladbroke Group's Texas Homecare with 9.6 per cent.

There have been modest sales increases in Do It All stores converted to a new format, where products are arranged according to DIY task. A rising proportion of own-brand products should improve gross margins. And a new central distribution depot in Tamworth, Warwickshire becomes operational next year. The expected store cuts might have been deeper, but for justifying the centre's cost.

Boots and WH Smith are now resigned to the fact that the DIY market is unlikely to improve for some time and could deteriorate. Net margins at Texas collapsed from 7.3 per cent to 4.3 per cent in the first half of this year and its kitchen sales fell by half. Even B&Q saw its first-half margin slip from 7.2 per cent to 6.9 per cent.

Although rivals like Sainsbury's Homebase are on the look-out for new stores, it is unlikely that many of Do It All's long leases will appeal to buyers. Shedding 50 stores could cost the two owners pounds 25m in cash and pounds 25m in write-downs, according to one analyst.

Last month, Boots unveiled plans to open 240 new Boots The Chemist shops over the next four years in a campaign aimed at convincing the City there is still growth potential in the highly successful core business. It also wanted to counter the impression that Superdrug, owned by Kingfisher, was poaching sales from it.

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