Inside This Issue - Opinion
A new Walgreens takes shape
April 6th, 2009
by David Pinto, Editor
Over the next months, a new Walgreen Co. will emerge. Newly hired staffers will sharply alter the direction of the retailer. A new merchandising concept will replace the old. New pharmacy initiatives will be unveiled. And the retailer will, in July, enter Alaska, its 50th state.
Traditionally, retailers struggling for success have been forced to change directions and promote and recruit with that goal. But seldom in the annals of U.S. retailing has a successful, world-class retailer so dramatically departed from a formula that has served it so effectively for so long and replaced it with a new, dramatically different program.
The catalyst for this new direction has been a recent drop-off in performance. The Walgreens drug store, long the industry standard for productivity, has been less productive of late — earnings dipped precipitously last year. And the formula that has for so long driven performance, one based on opening as many as 500 new stores annually and stocking them with all manner of merchandise, no longer guarantees success.
So it is that new people have replaced the old, new executives have been brought in, the company’s approach to drug store retailing has been reevaluated and readjusted, and the drug store shopper has been brought into the equation.
Among the staffing changes, three stand out. Last winter, president Greg Wasson was named chief executive officer, filling an opening that had existed since Jeff Rein, the previous CEO, left last fall. Kim Feil, an experienced consumer goods marketer, was brought in as Walgreens’ first chief marketing officer. And Bryan Pugh, an experienced retailer who had been instrumental in developing and implementing Wal-Mart’s global strategy and presence before helping launch Tesco’s Fresh & Easy U.S. initiative, joined the company last winter.
Signed on to develop a new prototype store and to assist in expanding Walgreens’ food presence, Pugh was quickly elevated to the key merchandising job, replacing George Reidl, who has been freed up to devote his energies and talents exclusively to pharmacy.
In mid-March, many of the retailer’s key suppliers were brought to Walgreens’ Deerfield, Ill., headquarters. There, they were introduced to the new staffers, briefed on the new directions and asked for their support going forward. Most significantly, suppliers were informed about the company’s new vehicle for drug store retailing, one that will replace Walgreens’ traditional approach to product selection with a program that aims to tie merchandise more closely to consumer preferences.
Called Consumer Centric Retailing (CCR), it is based on an SKU rationalization program designed to offer those products that consumers want, look for and buy when shopping a drug store. This month, the first three CCR stores will come on line, with the entire 6,700-store chain scheduled to be remerchandised over the next several years.
Other programs are in the works. Reidl, who will surely add a dimension to Walgreens’ pharmacy initiative, is even now at work on programs to make Walgreens more attractive as a pharmacy destination. Home health care — frequently neglected by chain drug retailers, owing to cost, inventory and space considerations — will get more attention in specific stores, as indeed it already has. Some variety of loyalty program is certainly in the offing, with the success of CVS Caremark’s ExtraCare effort surely a catalyst.
As stated, the retailer will enter Alaska this summer while continuing to expand its presence in Hawaii, with its first Maui store set to open in the fall.
Let’s be clear about this: Walgreens’ new initiatives are laudable on many levels for many reasons. The retailer has been mired in one direction for far too long, even as the consumer and the retail marketplace have been changing. Opening new stores has never, in itself, guaranteed success. It is less of a guarantor today than ever.
More to the point, Walgreens has been operationally dominated for far too long. With the notable exception of Vern Brunner, Walgreens’ merchants have been tolerated rather than respected, their roles viewed as complementary rather than necessary, their presence viewed more as an annoyance than a benefit. This, even as merchants at such retailers as CVS, Rite Aid, Wal-Mart and Target have been instrumental in driving the business. This, despite the fact that Walgreens’ merchants have long been viewed by the supplier community as among the best mass retailing has to offer, a perception as true today as it has ever been.
For Walgreens, it has always been about the stores, never about the role of the merchants in making those stores more appealing shopping destinations.
That’s all about to change — for the better. In the coming months Greg Wasson, Kim Feil and Bryan Pugh will set out to change a company in ways that its founder, or even its most recent group of top managers, never dreamed possible — or necessary. If thoughtfully diagramed and carefully implemented, these new directions will ensure that Walgreens going forward will remain what it has been for over 30 years: one of the very best mass retailers to have ever opened its doors.