Leverage new opportunities or risk ‘death blow’
Steve Laughlin, IBM VP/GM of global consumer distribution
“The last best experience anyone has anywhere becomes their expectation everywhere,” and the retail experience is no exception. That was the message conveyed by Steve Laughlin, VP and general manager of global consumer industry at IBM, in his CVS Health Innovation Summit presentation.
Laughlin noted that heightened consumer expectations, coupled with increased efforts by manufacturers and distributors to adopt a “direct-to-consumer” sales model, should be compelling drug chains and other retailers to leverage new opportunities in their businesses — or prepare for a “death blow.” He outlined several building blocks for capitalizing on these opportunities.
Leveraging cognitive systems
The retail industry as a whole is doing a poor job of harnessing data for such competitive purposes as enhancing customer engagement, in part because so much of that data is unstructured and, consequently, difficult to analyze, according to Laughlin. Cognitive systems comprise a good solution here because they understand imagery, language and other unstructured data (e.g., comments on social media), as well as have the ability to reason, grasp underlying concepts, form hypotheses and extract and infer ideas. Additionally, such systems can learn; their expertise sharpens with each action, data point and outcome; and they can interact with humans in a natural way.
Applying artificial intelligence
Laughlin pointed to the example of “shopping bots,” such as the Macy’s on Call shopping bot piloted last year by the Macy’s department store chain and developed using IBM’s Watson artificial intelligence platform. To use these shopping bots, customers type questions pertaining to the general or specific product they seek (e.g., women’s dresses or a woman’s dress by a certain designer) and are directed to its exact location.
Re-imagining the store
This involves reducing the volume of inventory available in store (although not necessarily from an alternate location, such as a distribution center) and decreasing the amount of space devoted to merchandise. The objective, Laughlin explained, is to give retailers sufficient space to undertake initiatives associated with their mission. For drug stores, these initiatives might be centered on wellness, fitness and helping consumers live a healthier lifestyle.
In re-imagining their stores, Laughlin said retailers must bear in mind how consumers think. He cited a pilot program introduced by Target and Home Depot. Both retailers featured a display of teakwood patio furniture in their stores, but the products were unavailable there — only via two-day delivery.
The results were different, Laughlin said, because Target customers don’t typically think about buying patio furniture there, so the products were purchased on impulse and the wait for shipping was not a problem. Conversely, Home Depot customers might indeed consider the retailer’s stores a destination for patio furniture.
Individualizing the shopping experience
In an individualized shopping experience scenario, personality profiles derived from consumers’ shopping history and customer analytics are used to deliver unique product recommendations online and in store — for instance, through mobile offers delivered while a consumer is standing in a store aisle. Each click of a consumer’s mouse or action taken in a store sparks further personalization and recommendations.
Adopting hyperlocalization practices
These practices include using not only historical and other internal data, but also external data, to plan store locations, merchandise assortments and finalize merchandise allocations. Laughlin said one chain utilizes Watson to curate information on the behavior of individual stores’ competitors and adjusts its own activities, such as price adjustments, accordingly.
Engaging in ongoing experimentation
Keeping pace with disruptive forces in retail necessitates a willingness to experiment with technology and data to interact with shoppers, building stronger relationships with them. Retailers need to deviate from their scripts and test different ways to engage customers. "Retailers need to act like the disruptors with which they’re competing,” Laughlin said. “It means moving quickly and, more important,” being willing to fail.
Video messages help drive mobile commerce
Facebook senior client partner Aaron Calloway
Video-based marketing messages designed for mobile viewing represent a significant opportunity for retailers, according to a speaker at the recent Health Innovation Summit, hosted by CVS Health in partnership with Drug Store News and Mack Elevation.
“Mobile is only going to get bigger for the rest of your careers,” Aaron Calloway, a senior client partner at Facebook, told the audience during a presentation at the summit, which took place at the Omni Hotel in Providence, R.I. Consumers now spend three hours per day on their mobile devices, he said, and mobile penetration continues to grow, with 2 billion new mobile phones activated last year alone.
Woonsocket, R.I.-based CVS has an opportunity to work more closely with its CPG partners to deliver personalized messages to its customers via such mobile platforms as Facebook and Instagram, said Calloway, who works with CVS to shape the company’s Facebook strategies. Such efforts could help drive mobile-based e-commerce sales. “Mobile needs to be at the center of everything,” Calloway said.
Just as mobile has become the focal point of digital activity, video also has emerged as a leading format of digital content. More than 50% of U.S. consumers watch video on mobile devices, Calloway said, citing research from eMarketer.
“This is a game-changer for businesses [that] want to engage with people and showcase their brands and products in more immersive and compelling ways,” he said. In fact, although new-product discovery often has been cited as a reason for consumers to visit physical store locations, 30% of mobile shoppers prefer to discover new products via video, Calloway said, citing research from Kantar’s “Path to Purchase 2016” report.
Short, impactful video presentations often can be crafted easily using existing photography, he said. In addition, marketers should keep in mind that practical, how-to videos are the second most-popular type of video consumed online, after entertainment.
When creating video communications, marketers also should take into consideration the fact that most Facebook video is consumed with the sound off, he added. “Build for that,” Calloway said. “People need to be able to follow the story wherever they want.”
Based on data from its users, Facebook’s extensive consumer insights can help marketers create more effective communications, he said. For example, a CVS beauty advisor event could be live-streamed online, then edited into shorter videos and repurposed as targeted marketing messages for specific customers, such as those who have purchased cosmetics in a store in the last six months.
Location-based marketing presents yet another opportunity, Calloway said, noting that 98% of CVS stores have been geo-fenced so that Facebook can detect when a customer has entered a specific location. “We can measure campaigns and see if they were effective at driving people into your stores,” Calloway said. “We can change the copy by store, we can change the image and we can show you where you are in relation to the store on a map.”
WBA secures regulatory clearance for new Rite Aid deal
DEERFIELD, Ill. — Walgreens Boots Alliance announced Tuesday that it has secured regulatory clearance for an amended and restated asset purchase agreement to purchase 1,932 stores, three distribution centers and related inventory from Rite Aid for $4.38 billion in cash and other consideration.
“This is a significant moment for our company,” stated Stefano Pessina, executive vice chairman and CEO Walgreens Boots Alliance. “Combining Walgreens retail pharmacy network with a strong portfolio of Rite Aid locations is expected to help us achieve enhanced, sustainable growth while enabling us to broaden our reach and provide greater access to convenient, affordable care in more local neighborhoods across the United States."
"With a compelling and more profitable store footprint in key markets, enhanced purchasing capabilities and a stronger balance sheet and improved financial flexibility, we are well positioned to implement our plans to deliver improved results," added John Standley, chairman and CEO Rite Aid. "We are committed to supporting a smooth transition as we remain focused on delivering a great customer experience, improving our business and creating value for all of our stakeholders."
After all stores are acquired, stores are planned to be converted to the Walgreens brand in phases over time. The stores to be purchased are located primarily in the Northeast and Southern U.S., and the three distribution centers to be purchased are located in Dayville, Conn., Philadelphia, Pa., and Spartanburg, S.C. The transition of these distribution centers to Walgreens will not begin for at least 12 months.
Rite Aid will provide certain transition services to Walgreens Boots Alliance for up to three years after the closing of the transaction.
The consideration for the transaction will now be $4.375 billion in cash, the assumption by Walgreens Boots Alliance of the related real estate leases and the grant of the option to Rite Aid, exercisable through May 2019, to become a member of Walgreens Boots Alliance’s group purchasing organization, Walgreens Boots Alliance Development. Walgreens Boots Alliance will also assume certain limited store-related liabilities as part of the new transaction.
The transaction has been approved by the boards of directors of Rite Aid and Walgreens Boots Alliance and is still subject to other customary closing conditions. Store purchases are expected to begin in October, with completion anticipated in spring 2018.
Rite Aid expects to use a substantial majority of the net proceeds from the transaction to repay existing indebtedness which will improve the company's leverage levels. Rite Aid also expects that the gain it will record on the sale of the assets will be largely offset by its net operating loss carryforwards, resulting in a minimal cash tax payment on this transaction.
Immediately following the completion of the transaction, Rite Aid will continue to operate approximately 2,600 stores and six distribution centers as well as EnvisionRx, its pharmacy benefit manager, RediClinic and Health Dialog. The company will leverage the capabilities of these subsidiaries to deliver a higher level of care in the communities it serves.
The amended and restated asset purchase agreement replaces the earlier purchase agreement entered into by the parties in June 2017, which included 2,186 stores and related assets for $5.175 billion in cash and other consideration.