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Walgreens posts modest June gains

BY Jim Frederick

DEERFIELD, Ill. Walgreens drove sales ahead by 9.9 percent in June, compared with the same month last year, and eked out a respectable, if not stellar, 3.4 percent gain in same-store sales for the period. At the front end of the store, comp-store sales were up 3.5 percent over June of 2007.

In an increasingly difficult climate for retail sales and consumer spending, Walgreens’ sales last month topped out at $4.81 billion. June front-end sales were helped in part by strong sales of promotional products, consumables and gift cards, the company reported today.

Also driving demand at the front of the store was Zyrtec, which recently switched from prescription to over-the-counter status. Zyrtec alone accounted for 0.5 percentage points of front-end gains, Walgreens revealed. But the shift of Zyrtec from prescription to over-the-counter status also drained the company’s same-store pharmacy sales by 0.6 percent.

On the negative side, front-end sales were hurt by comparisons to last year’s introduction in June of alli, the over-the-counter diet medication, and promotional pricing in the photofinishing department.

June pharmacy sales rose 9.7 percent, while comparable pharmacy sales increased 3.3 percent—anemic by Walgreens’ historic standards. Dragging comp-store performance at the pharmacy were generic drug introductions, which yield generally higher margins but lower top-line sales.

“Comparable pharmacy sales were negatively impacted by 2.1 percentage points due to generic drug introductions in the last 12 months,” Walgreens reported.

Total prescriptions filled at comparable stores increased 0.8 percent.

Calendar 2008 sales were $29.71 billion, an increase of 10.4 percent over 2007. Fiscal 2008 year-to-date sales for the 10 months were $49.25 billion, up 10.1 percent from the same period last year. Comp-store sales for the fiscal year to date increased 4.4 percent.

Walgreens said it opened 50 drug stores during June, including seven relocations, acquired three stores and closed one. ?As of June 30, the company operated 6,772 locations in 49 states, the District of Columbia and Puerto Rico.

That figure includes 6,297 drug stores, 544 more than a year ago. The company also operates worksite health centers, home care facilities and specialty, institutional and mail service pharmacies. Its Take Care Health Systems subsidiary manages 183 convenient care clinics at Walgreens drug stores. Franchisees of Option Care, Inc., a wholly-owned subsidiary of Walgreens, are not included in Walgreens’ location or store count.

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American Greetings, MGM ink licensing deal

BY Michael Johnsen

CLEVELAND Greeting card recipients may soon encounter Inspector Jacques Clouseau.

American Greetings and MGM Consumer Products announced an agreement Monday that will allow the greeting-card maker to use images from MGM films on its products.

Classic films such as “The Pink Panther” series, starring Peter Sellers as the klutzy Clouseau, “Rocky” and “Dances with Wolves” are among the films to which American Greetings will have access, along with newer movies such as “Legally Blonde.”

MGM’s library of films comprises 4,100 titles, making it the world’s largest.

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A new look for Walgreens

BY Mike Troy

ORLANDO, Fla. Walgreens’ pursuit of growth in recent years has caused the company to open in-store clinics, create a new offering of health services and even pursue acquisitions. Now, the company best known for operating 15,000 square foot stores located at the intersection of Main and Main also is bringing new thinking to store designs and prototype development.

“One size does not fit all,” Don Whetstone, senior director of merchandising strategy and development said last week at the Retailing Smarter conference sponsored by the University of Florida’s David F. Miller Center for Retailing Education and Research. Whetstone is a 27-year Walgreens veteran who now leads a newly created organization responsible for the development of an expanded portfolio of store formats and strategies to better meet the needs of key markets and trading areas.

Walgreens will continue to rely on the familiar 15,000 square foot corner drug store with approximately 26,000 products across 150 departments located on a two acre parcel, but work is underway on the development of alternative formats and new store designs. As in other segments of the retail industry, smaller formats are seen playing an important role in Walgreens future expansion, especially as the company pursues growth in high density markets with limited real estate opportunities.

“A smaller format will facilitate our continued expansion in markets in the Northeast and California,” Whetstone said. “We find ourselves having to become more flexible to shoehorn into some of these areas.”

He offered as an example a Walgreens store on Castro Street in San Francisco that is one third the size of the company’s average store but it produces twice the annual sales. “We have to take that concept and learn from it and be able to take it places like Boston,” Whetstone said.

In addition to smaller formats in urban areas, Walgreens also has developed a store prototype designed to operate profitably in small markets that offer top line sale potential below the typical $8 million the average new Walgreens store generates during its first year of operation. According to Whetstone, the company has created a store design that functions with 17 percent less inventory, 22 percent less labor, 24 percent less facility costs and half the advertising pages of a typical store without compromising the customer experience.

In addition to new store designs and smaller formats, the coming years could bring sweeping changes to the appearance of Walgreens conventional stores. “Even our prototype needs a facelift every now and then and we are working on that now,” Whetstone said.

Walgreens converted a warehouse three miles away from its Deerfield, Il headquarters into what Whetstone called the Innovation Center. It is a place where merchants and store designers are able to experiment with fixtures, signing, presentation and product adjacencies.

The result was the development of a new design that is now in place at four Chicago area stores and two other locations elsewhere. The design features a softer, more feminine color palette, lower fixture heights, a crisp clinical look in the pharmacy department and a racetrack layout that Whetstone concedes will probably not be used going forward.

Walgreens is still assessing customer feedback and Whetstone shared one telling comment from a woman who visited the new cosmetics department and said, “it looks like it’s been designed by a woman instead of a bunch of old guys.”

Walgreens has abundant opportunities ahead of it to change consumer perceptions of its store designs. The company currently operates 6,727 locations and one third of those stores are less than five years old. Through the first three quarters of its fiscal year, Walgreens has opened 420 stores and is on track to achieve its full year goal of opening 550 stores.

“We open a store about every 17 hours,” Whetstone said.

Long-term term, plans call for 7,000 stores by 2010. Looking ahead to 2012, the company has revised its terminology somewhat to talk about having 10,000 points of care, inferring that much future growth with come from sources other than retail stores.

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