Boots the Chemists Ltd has launched a version of its Advantage loyalty card combined with a credit card from Egg, the internet banking division of Prudential Plc. However, the company has failed to impress merchant bank Credit Suisse First Boston (CSFB), which described shares in the Boots Co Plc as "overvalued" despite having fallen by almost 50 per cent in the past 18 months.
The Egg Advantage card was launched on April 12. Customers using the card will receive five loyalty points instead of four per pound spent on qualifying items at Boots and one point per pound spent on other purchases. Boots has issued 12m Advantage cards, 8.5m of which are in regular use.
The effectiveness of the Advantage card in boosting sales and the possible effects on Boots of the abolition of resale price maintenance were some of the concerns raised by analysts at CSFB in a report on the Boots Co issued on April 12.
The report says that its analysis revealed "surprising trends" in the core Boots the Chemists division. These include a declining number of customer transactions, falling market share in over-the-counter medicines and failure of the Advantage card to lift sales by the expected amount.
The report says that the Advantage card has failed to attract new customers to Boots in any significant numbers. Indeed, because Boots has concentrated its promotional efforts through the card (with "double points days" and the like), it has driven away some of the company's less loyal customers. They have been attracted by more traditional "money off" promotions elsewhere. However, spending by card users has increased.
CSFB said that Boots's plan to open 200 edge-of-town stores would require "a phased withdrawal from marginalised high street stores" because of increasing cannibalisation of existing sales.