Jeremy Seigal says AS Watson is back on track

Jeremy Seigal, chief executive of AS Watson Health & Beauty UK, likens his business to the Olympics. He recounts Team GB’s performance in the 1996 contest. “Team GB came 36th that year, and didn’t win much,” he remembers.

The parallel with his health and beauty chains – the largest of which is Superdrug – is “you have to choose what to participate in, and unless you win a medal it counts for nothing”.

He explains: “You may not be a track and field athlete, so you might want to start with cycling, equestrianism or rowing. Whatever you choose you need to make it work.”

Superdrug’s objectives all stem from its strapline “Winning locally in beauty and health”. Seigal says: “While health and beauty trips off the tongue in the same way as say, fish and chips, we say beauty and health. So we make sure we are winning in the right places.”

He says Superdrug has a heritage in several beauty-led fields and so “we have a right to win there”. Just a couple of those areas are hair colourants – in which Superdrug is market leader – and mascara. “You have to be clear what you’re doing and why you’re doing it,” he says.

While Superdrug has always had a heritage in beauty, Seigal has worked hard to cement that position since taking the reins in April 2008. In his first interview since he was promoted, he says the business had some problems that needed tackling when he took over and is “now heading in the right direction”.

Seigal – previously managing director of AS Watson’s Perfume Shop chain – took over the health and beauty mantle, which also covers Superdrug’s value stablemate Savers along with Perfume Shop, when former chief executive Euan Sutherland jumped ship to DIY group Kingfisher.

Sutherland left four years into a five-year plan to take on the might of Boots and Tesco, and Seigal says “the business was on a journey and hadn’t completed that journey”.

When he took the helm, the first thing he did was clear out old stock. “We were very good at buying but hadn’t sold much,” he says. “So 2008 was very much about clearing the deck and that culminated in a great Sale in January 2009.”

He recalls: “My first store visit was the Superdrug in Croydon. Everywhere there was stock. I saw one stockroom, then another, and it was piled up everywhere. And this stock was not like fine wine – it did not get better with age.”

Part of the stock problem arose from Superdrug making forays into general merchandise early in the decade. “We needed to exit that more forcibly,” Seigal says. “We had stock such as old foot spas and MP3 players that were 64MB.”

The January Sale – called Superprices – got rid of around 80 per cent of the stock but, as a consequence, Seigal admits “we took a hit on our P&L”.

For the year ending December 27, 2008, Superdrug reported an operating loss of £2.4m and a loss after tax of £6.5m. “This hit was partly driven by the desire to clear the decks and we had the full support of AS Watson. They knew it needed to happen to drive the business forward,” he maintains.

Superdrug has since exited some categories, but where it is confident it can win it has expanded. Seigal points to baby ranges. “Over the past few years we didn’t realise how important baby ranges were to our customers, so we reduced the amount of innovation, space and visibility in stores,” he says.

“Yet if you only have a small amount of space for a certain range, the customer says: ‘I’m not confident in the retailer, and I don’t want to be here.’ When you do things, you need to understand what the role of those products are.”

Superdrug’s focus on beauty is not to the detriment of health, but Seigal is realistic about rival Boots’ leadership in that area. “Boots is incredibly strong in health and outdoes us on the high street by 7:1,” he says. But he also points out that, of Superdrug’s 900-plus stores, 220 are pharmacies and the retailer will continue to innovate in that market.

Seigal insists the “winning locally” part of the Superdrug strapline is key. “What we may do in Wakefield may be very different to what we do in Westfield,” he says. He explains the trick is to adapt to customers’ needs, and that Superdrug has adjusted about a quarter of stores to suit local requirements.

He is adamant that parent AS Watson is behind him on store development. “I love all my children,” he says of the shops, adding that if a store is not doing well, AS Watson has a clear line – fix it.

“The line is not to close a loss-making store or write it off; it’s to find out what is wrong and fix it,” he says. “And that focuses on winning locally.”

He cites his loss-making Superdrug store at Maesteg, in the Welsh Valleys. “Maesteg is hardly an economic powerhouse, and in some ways would be cited as a disaster,” he says. But he argues that while Maesteg is loss-making, “we are not going to give up on it”. He adds: “The team in the store are working so hard to win in that community. Whether this is by activities, promotions, or tie-ups with the hair salon opposite, I’m confident we’ll get there.”

He is also committed to Savers, which has struggled in the past few years. He says that its place on the high street is “more clear than ever” in the recession and that while it is tough, the team are working hard on the proposition.

Scrutinising costs

The difficult trading environment has meant Superdrug has had to examine its costs – including property, staff and suppliers.

On property, Seigal says landlords must play ball. “The high street is our heartland and there are more than one in eight voids out there. The high street needs a balanced view or it will tip over,” he says. “Because of the strength of our covenants we are happy to extend leases, but we want landlords to be flexible.”

He says landlords were scared of creatively talking to retailers when there was a wave of bankruptcies and they were fire fighting, but they are being more open now.

Superdrug is not planning any redundancies this year, but Seigal explains the chain is in a consultation process with staff in stores and distribution centres on terms and conditions. While he won’t give details, he says a lot of the outcomes will be on broad issues such as scheduling.

“In our smaller stores we may find that staff have the time available to clean the stores instead of getting in an outside contractor,” he says. “Or we may look at when the stores are quiet and we don’t need as many staff.”

Seigal says all retailers need to have “robust discussions” with suppliers. He explains that some suppliers wanted to put their prices up because of exchange rate fluctuations. He had a meeting with Procter & Gamble and he asked the company how much its cost of media had fallen, and the answer was 20 per cent. “They respected the debate and the fact that we are working hard to give value to our customers, but these conversations absolutely need to happen,” he says.

Returning Superdrug to its mantra of “winning locally in beauty and health”, as well as in value, has helped it deliver an uplift in sales – like-for-likes are up 0.9 per cent in the year to date. Seigal believes Superdrug’s USP is its accessibility, which he thinks means it can rival Boots and the supermarkets.

“Boots is a mum telling you what to do, while Superdrug is the older sister giving you the inside track,” he says. “And that inside track might be in beauty and in the latest exclusive ranges that we have.”

Healthy competition

He also believes that while supermarkets represent a great challenge, customers’ attitudes to beauty in a big Tesco store are very different to a local Superdrug. “Customers want me-time when they come to us, and in beauty we are often quicker to market than others,” he says. “We also tailor our offer to our market, whereas supermarkets are one size fits all.”

He believes competition is good for the consumer. “Boots and I want to beat the proverbial out of each other, but the risk is that if there is only one player left then it isn’t done very well,” he says.

While Seigal believes this Christmas will again be very price-focused, he is confident the business is moving in the right direction. Beyond wider economic factors, he believes there are things the Government can do to help retailers.

He says: “Retailers are not favoured from the Government’s point of view; we have had to suffer things like the national minimum wage, upward-only rent reviews and uniform business rates. They believe retail will always be around, whereas companies such as Jaguar might not, so they get the lifelines.” The Government, he adds, could change the date of the VAT switch, which would “show a degree of understanding”.

He also says that training needs to be handled carefully. He points out that around 1,000 staff graduate from a Superdrug training course each year and retail can provide opportunities for continual learning.

“A lot of kids are not academic and won’t go to university,” he says. “So it would be a tragedy if all the Government resources went to university education to the detriment of my people. We give people a chance to learn and while we could bleat about tax, it is keeping the resources for education and training that I am most adamant we need.”

Seigal’s task isn’t an easy one. Having his team all on side will be vital in its Olympic-scale battle with Boots and the supermarkets.