Rounding out the year on an up note, the chain drug industry turned in solid revenue and same-store sales gains in 2010.


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Strong finish lifts chain drug sales for 2010

January 17th, 2011

NEW YORK – Rounding out the year on an up note, the chain drug industry turned in solid revenue and same-store sales gains in 2010.

Industry sales volume climbed 5.4% year over year to $238.3 billion in 2010, with same-store sales edging up 2.6% overall, according to research by Racher Press, the publisher of Chain Drug Review.

Drug chains finished the year with a flourish, seeing a nearly 6% year-over-year sales gain in December and a 3.5% same-store sales increase.

According to market researcher Kantar Retail, overall retail industry same-store sales advanced 3.2% in December, driven mainly by stronger-than-average results at department stores but with food, drug and mass retailers close to the composite gain.

On Friday, the U.S. Commerce Department reported that retail trade sales in December were up 8.2% from a year ago and inched up 0.7% from November, based on advanced estimates. For 2010, total retail trade sales came in at $3.93 trillion, a 7.1% increase from 2009, according to the department's preliminary figures.

The health and personal care stores segment, which includes pharmacies and drug stores, saw a year-over-year sales increase of 6.5% in December, and for all of 2010 the segment's revenue rose 3.8% to $264.19 billion, the Commerce Department said.

"While challenges certainly still remain, consumer spending is steadily returning to pre-recession levels," Sandy Kennedy, president of the Retail Industry Leaders Association (RILA), said in a statement Friday on the Commerce Department's advance retail sales data. "The economic uncertainty and consumer anguish that defined the past three years appears to be fading as increasing signs of growth and stability in the economy emerge."

Retailers employed a variety of strategies to snare shoppers' business, including creative promotions and discounts and special deals both online and through new media and mobile channels, RILA noted, adding that retailers also managed their inventory well during the holiday season.

"There is good reason for optimism today in the retail industry," Kennedy stated. "Those retailers that refined operations, prioritized innovation and invested wisely over the past three years are poised to realize considerable growth in sales and profitability as consumer spending continues to rise."

Still, drug store chains are wary of a dramatic turnaround, given the conservatism accompanying the sluggish economic recovery.

High joblessness and "the disastrous economic climate" of the past two years have likely caused a "permanent shift in consumer behavior," said John Standley, president and chief executive officer of Rite Aid Corp., which in December posted its first same-store sales gain since May 2009. Shoppers will continue to seek bargains, even when the economy picks up, he remarked, adding "the more pragmatic, hard-choice mind-set is here to stay."

The new year is looking a lot like the old year, according to Discount Drug Mart chief financial officer and senior vice president of finance Tom McConnell. From a retail perspective, it's a time "to hunker down and get a small increase in sales," he said. "It will be about controlling costs and maintaining margins."

Pharmaca Integrative Pharmacy president and chief executive Mark Panzer said that although consumers have relaxed their grip on their wallets "ever so slightly," shoppers will continue to be price-conscious, "seeking out the best deals to support their basic needs and forgoing most impulse purchases."

The front end could be a sales driver, considering that consumers see many health and beauty aids as essential items and turn to drug stores for low prices.

Last month, front-end business helped Walgreen Co. sustain its same-store momentum. Walgreens' comparable-store sales (excluding Duane Reade) in December rose 2.8%, with same-store front-end sales up 3.6% — the highest increase in 14 months, the retailer noted.

Rite Aid, meanwhile, saw its monthly same-store sales rise for the first time in 19 months.

For the four weeks that ended Christmas Day, Rite Aid's comparable-store sales edged up 0.6% versus declines of 1.3% in November and 1.7% in October. The chain's last reported same-store sales gain was in May 2009, also a 0.6% uptick.

Rite Aid's monthly sales were an "encouraging result in light of management's fourth-quarter guidance reduction on slower sales expectations," Deutsche Bank Securities analyst Bill Dreher wrote in a research note.

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