NEW YORK In its sweeping, soup-to-nuts drive to regain momentum and recapture its marketing mojo, the nation’s most widespread and profitable drug retailer continues to surprise.
Since late 2008, Walgreens has installed a new CEO, overhauled its management structure and many of the people who staff it, virtually halted its historically aggressive store-construction strategy, stripped hundreds of SKUs from its bloated merchandise mix and altered both the layout and design of its store prototype. It has hired a phalanx of outside experts in Web-based retailing, packaged-goods marketing and strategic planning. And it has cut against the grain of a longstanding, densed-up store-merchandising policy by shedding 20% of its mix in some front-end departments and by lowering every fixture to reduce clutter and improve sightlines.
Now comes the latest surprise: the hiring of an outside marketing company, a first for the 108-year-old, 6,900-store chain. It’s a surprise, because Walgreens grew up alongside America, establishing itself as a Main Street fixture in cities and towns across the country with a unique ability to read and anticipate the needs and whims of its millions of customers. Its customer traffic — more than 5.3 million shoppers a day — is testament to that success, as is its enviable record for per-store sales, net profitability and innovation.
But those measures are snapshots of Walgreens yesterday, and CEO Greg Wasson and the rest of the company’s nimble management team know it. The competition from CVS Caremark, Walmart and others has grown furious, and new, integrated models of health retailing and managed care — CVS in tandem with its powerful PBM, Caremark, is a prime example — have risen to challenge Walgreens’ time-tested formula. Customers have many more choices than before, and more inducements to shop and get their medicines from one pharmacy over another.
Walgreens is turning to Arc Worldwide to rejuvenate its image and its appeal to everyday consumers. The goal, said Arc Worldwide president and CEO Bill Rosen, is to apply “leading-edge cross-channel activation expertise, combined with powerful, creative ideas to activate behavior and sales.”
It all sounds very scientific. But it may be the approach the company needs right now. “Over the past 10 years, the number of items in Walgreens’ basic assortment grew by 19%, while the average basket size only increased by 2%,” said one analyst recently.
The goal of Walgreens’ remerchandising efforts is simply stated but ambitious: to add excitement to the store’s presentation, pull in more customers and add at least one item to the average per-customer shopping basket. “The average Walgreens shopper comes in our store to buy 1.5 items and leaves with 3 items. It has been that way for years,” explained Wade Miquelon, EVP and CFO. “By adding just one more item to the average basket, we can add $1 per share in earnings,” Miquelon said. “You can see why we are so focused on this as a core plank of getting ‘more from the core.’”
Said Mark Wagner, SVP operations, “We’re really taking a look at not just stores. We always look at them on a stand-alone basis for P&L, but because we have 70% of the U.S. population within 5 miles of a Walgreens drug store, we’re looking at it in terms of communities — and we’re forming stores around communities so they can be more responsive to community needs and what’s going on in the local community.”