All made up by makeover success

Published on Sunday 29 July 2007 00:18

FOR most men, the contents of a woman's handbag are a mystery best left alone. But not for Euan Sutherland, the boss of Superdrug, who is turning his business upside down after rifling through those items which ladies deem essential enough to be carried around at all times.

Three years ago, when Sutherland joined the firm, Superdrug was in trouble. It was perceived as a cheap, downmarket alternative to Boots, with a product range that owed more to what the buyer could get cheaply than what the customer wanted.

Sutherland's solution was simple: "We got groups of 12 women at a time together, and asked them to say what was in their handbags. Then we said we would sell those items."

Between taking bites from a sandwich in a hotel bar in his native Glasgow, Sutherland enthuses cheerfully about the changes still working their way through Superdrug's 905 stores.

"We are after the glamour-puss customer - women who want to take care of themselves and have a bit of money to do it."

He puts down his sandwich, picks up his laptop and calls up images of the next generation of Superdrug stores. The look is more upmarket and spacious, like the perfume and cosmetics floor of a department store. It widens the difference between Superdrug and the market leader Boots, with its ordered rows of clinical displays.

Sutherland has some praise for his competitor, which has gone through a takeover with rival Alliance and a private equity buyout instigated by Alliance boss Stefano Pessina in the space of a year. "Boots is a fantastic brand. It brings people to the high street, and we all need people to come to the high street. It was a good move for Boots to merge with Alliance, and they will be getting big synergies. It always felt like Pessina wanted to take the firm private. KKR [the buyer] is a very aggressive and determined private equity firm and will make it work."

But he warns the iconic chain could face problems: "They have a huge retail estate, which has looked about the same for the past 15 years. To upgrade it would cost hundreds of millions of pounds. Having paid a lot of money to buy the business, KKR will not want to pile in a lot more capital. That could be a threat to them. In retailing, you have to keep the shops fresh."

Sutherland has another reason for maintaining an interest in Boots. After studying accountancy at Edinburgh University and training to be an army officer, he took a business studies course at Aston University which led on to Boots' graduate training scheme.

He moved to Dixons, the electrical retailing group, and helped the then chief executive Trevor Bish-Jones to turn around its Currys chain with the "Currys - no worries" campaign. Then in 2004 he joined Superdrug, which had just been acquired by AS Watson, a division of billionaire Li Ka-Shing's Hutchison Whampoa empire.

At 6ft 6in and a former rugby player, Sutherland might seem an odd choice of chief executive for such an overwhelmingly feminine business as Superdrug, where five out of every six customers are women.

Sutherland, who likes nothing more than to drive around on his Massey Ferguson tractor with his three young sons, admits to at least one moment of doubt: "We were in New York, in Henri Bendel [cosmetics shop] at nine in the morning, and I ended up with a face pack on. I thought: "I just don't get this. Am I qualified for this job?" I worked out that the excitement I get from driving a V8 car or my tractor is the same as a woman gets from getting the beauty treatment."

But he enjoys the effort involved in turning Superdrug around from what it was - "a bit of a health and beauty version of Woolworths" - to a 14% rise in operating profits last year. "We had a challenge. I kind of enjoy that - maybe that is part of being Scottish, that you are up for a challenge."

And having worked for his share of quoted companies, he prefers being part of a private group. "Being part of Hutchison, it is like having a long-term private equity investor in the business. I feel I am the true chief executive of the business. Canning Fok (Hutchison managing director) takes a very personal view. I see him for an hour or so a month, and he will get right into the detail. He will not know about the beauty strategy or the stores, but he will know the numbers."

Every few months he meets Li, who controls an empire running from ports in the Far East to the UK's 3 mobile phone network, and believes the way he has structured the company has been crucial to Superdrug's expansion. "We have innovated the business far more than we could have done if we were a PLC. Trying to impress shareholders and analysts makes a lot of retailers take the wrong decisions.

"Being a Hutchison company, getting capital investment is pretty easy - there are tough hurdles, but the money is there. "

At 38, Sutherland comes across as relatively youthful in his attitude. While some bosses like to hide behind a wall of assistants and managers, he spends an hour every evening dealing with online questions from his 18,000 employees, and updating them with a daily blog about his activities.

Staff morale is likely to get a boost next month when a British actress reveals plans to sell her new perfume and cosmetics range exclusively through the store.

Superdrug recently took to celebrity endorsements, working with the veteran supermodel Cindy Crawford last year to promote its skin care products. She was certainly a glamour-puss, but Sutherland believes the company's current promotion with London-born actress Mischa Barton is more in tune with his customers. "You have to be in touch, and Mischa is perfect. Cindy Crawford was maybe too American."

Hutchsion inherited 685 Superdrug stores, and Sutherland grew it to 905 by converting another AS Watson brand, Savers, and opening new stores including one planned for the Silverburn shopping centre in Glasgow. He believes the estate will stop growing at around 1,000 stores, which it is likely to hit next year. From being the equivalent of dowdy Woolworth, Sutherland says, Superdrug is now the "Top Shop" of health and beauty - in touch with the trends, not too pricey, fun to wander around.

Ten stores will be converted or built to Superdrug's "next generation" concept in the next few months, including two in Glasgow and one in Edinburgh. The flagship shops will feature bold pink fascias, wider aisles and displays set at angles rather than in straight rows.

The proportion of beauty products has doubled to about two-thirds, slimming down the range of lower-margin heathcare products that customers can get elsewhere. At the same time, the company is updating its stock with the latest brands including Taxi Cosmetics, with an urban image, and Famous, created by celebrity make-up artist Sue Moxley and Cheryl Carter, the Sun's beauty editor. "Our customer is the Sun reader - down-to-earth," Sutherland says.

And where once staff could get by without any training in health and beauty, a rigorous set of courses has been set up with input from institutions such as the London College of Fashion.

In the past, such a makeover might have repelled the one in six Superdrug customers who are men. But pink is no longer a turn-off for guys, it appears, and interest in male grooming is growing fast.

For many retailers, the big cloud on the horizon is the supermarkets, particularly Tesco with its massive buying power, low costs and unbeatable customer base.

But Sutherland is relaxed about the threat. "In things like basic hairspray, nobody is making much money because Tesco has taken the value out of the market. What Tesco finds difficult is more specialised areas such as fragrances, beauty and nail care.

"There are two shopping trips - one is the routine replenishment, buying the things you need to replenish the home. Then for the female customer there is the shopping trip either alone, or with mother, daughter or friends, to have a bit of fun. That is what we do."