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Drug Store Chains Underserved In Consumer Electronics


— The consumer electronics category
may not be living up to its potential within the nation’s
drug store chains.

According to research by TWICE and market intelligence
partner The Stevenson Company, CE sales
by the channel’s three dominant companies — Walgreens,
Rite Aid and CVS —amounted to only $111
million last year.

That’s about 1 percent of all the CE revenue generated
by the industry’s Top 100 retailers, or $121 billion,
as charted by TWICE and Stevenson, and a surprisingly
small sum for a store base of nearly 19,000
locations — more than Best Buy, Walmart, Target,
Costco, Gamestop, RadioShack, Sam’s Club, Sears
and Office Depot combined.

Similarly, CE accounts for less than 1 percent of
the drug store chains’ combined revenue of $144.4
billion. By comparison, electronics comprise about 7
percent of U.S. sales at full-line discounter Walmart.

So why does CE get such short shrift at the pharmacies?
The answer lies largely in their assortments, which
are generally comprised of low-priced commodity products
with an emphasis on quick-turn accessories. Built
upon a foundation of photo-finishing and low-end cameras,
the chains’ CE selections are built for high-velocity
grab-and-go convenience, and the revenue they produce
is far outpaced by the unit volume they generate.

Shelf space is another factor. Aside from Walgreens,
which devotes significant real estate to CE
within fixed departments, electronics merchandising
can be scattered and inconsistent at CVS and Rite
Aid, with the category taking a back seat to highermargin
health and beauty aids.

But drug store chains may still get the last laugh
in CE. By the very nature of their business, they are
perfectly poised to capitalize on the expected boom
in digital health and wellness devices, a category that
is under close scrutiny at Best Buy.

Here’s a look at the leading pharmacies:

From its humble beginning in 1901 as a tiny Chicago


has grown into the nation’s
No. 1 drug store chain, with more than $63
billion in sales last year and about 7,100 stores, led
by president/CEO Greg Wasson.

Unlike CVS and Rite Aid, which extended their
footprints through expansive acquisitions, the selfproclaimed
inventor of the malted milk shake built its
pharmaceutical empire through internal growth — the
one major exception being this year’s $1.1 billion purchase
of New York’s Duane Reade.

Walgreens’ CE assortment is expansive yet elemental:
batteries, chargers, blank media, cables, flash
memory, digital imaging, photo finishing, portable A/V
and prepaid mobile phones, which together accounted
for about $70 million in revenue last year, down 6
percent from 2008. (See TWICE, March 8, page 16.)

CVS Caremark

is the country’s second-largest
drug store chain and third largest in CE sales.

The company, whose initials stand for Consumer
Value Stores, began in Lowell, Mass., in 1963, and
catapulted into the top ranks of retail through a series
of major purchases, including 2,500 stores from
Revco, 1,268 Eckerd Stores from JCPenney, and
700 Sav-On and Osco stores from Albertsons.

CVS itself merged with pharmacy services provider
Caremark Rx three years ago, and today operates
about 7,000 locations in 41 states, led by chairman/
president/CEO Thomas Ryan.

Existing stores typically range in size from 8,000
square feet to 25,000 square feet, although most
new stores have been pared back to about 10,000 to
13,000 square feet in size.

Net income was $3.7 billion last year on net revenue
of $98.7 billion, while the retail segment posted
an operating profit of $4.2 billion on $55 billion in
sales. About 16 percent of retail revenue is generated
by general merchandise. Net revenue for “front of
store” sales rose 12.7 percent last year, while samestore
sales edged up 1.2 percent.

The CE assortment includes cameras, flash memory,
portable navigation devices, personal media players,
batteries, accessories and photo processing, and
many of its A/V products carry the Craig and Philips

Executive VP Mike Bloom, who oversees merchandising
and supply chain, cited CE in a Father’s Day
pitch to last-minute shoppers last June. “From designer
cologne and shaving tools to portable TVs and
GPS devices, we offer one-stop shopping at more
than 7,000 locations, even at the last-minute.”

Nevertheless, CE sales slipped 6 percent last
year to approximately $20 million, which would have
landed CVS in the 102nd spot on the TWICE retail

Rite Aid

is the third-largest drugstore chain in the
country and the second largest in CE sales.

Started in 1962 as Thrif D Discount Center in
Scranton, Pa., the company was also hobbled together
through acquisitions, although two in particular
stand out: the 1996 buyout of the 1,000-store Thrifty
PayLess chain on the West Coast, and the 2007 purchase
of Eckerd Drugs and Brooks Pharmacy, making
it the largest drugstore chain on the East Coast.
Drug Store Chains Underserved In Consumer Electronics
Walgreens is the largest drug store chain and leads the channel in
CE sales.

Today the Camp Hill, Pa.-based business operates about
4,780 stores in 31 states, with fiscal 2010 sales of $25.7
billion, but growth came at a high cost: The company is
highly leveraged, with about $6.4 billion in outstanding
debt, and the Brooks Eckerd acquisition left Canada’s Jean
Coutu Group with 27.4 percent of the voting power and
four out of 14 seats on the board.

Rite Aid lost $73.7 million during the first quarter of
2010, ended May 29, and sales slipped 2.1 percent to
$6.4 billion due to 58 store closings and a 1 percent decline
in same-store sales.

President and COO John Standley became CEO in
June, succeeding CEO Mary Sammons who will remain
chairman for two more years.

The stores average about 12,500 square feet in size,
and about 32.1 percent of sales are generated from general
merchandise, or so-called “front end” products, of
which the company carries some 25,000 different items.
Excluding over-the-counter medications and consumables,
general merchandise makes up about 18 percent of sales.

Like all drug store chains, photo processing is the cornerstone
of Rite Aid’s CE selection, with one-hour photo
shops located in about 40 percent of locations. The assortment
also includes single-use cameras, portable DVD players,
headphones, digital photo frames, batteries, cables
and other accessories. Most products retail for less than
$30, and many carry the Coby brand.

Rite Aid made a point of promoting its CE assortment
last Christmas when its recommended stocking stuffers included
a universal remote and four-pack of AAA batteries,
and a DVD-rental gift card.

Nevertheless, CE sales plummeted 19 percent last year,
to $21 million, which would have landed Rite Aid in the
101st position on the TWICE retail rankings.’s Top 10
Most Popular CE Products

1. Coby 1.5-inch digital photo keychain, $11.98
2. Coby Pro Studio Monitor headphones, $9.98
3. Kodak Max Water & Sport One-Time Use camera, $14
4. OtterBox iPhone 3G and 3Gs Defender case, $34
5. Sylvania mount for 13- to 27-inch TVs, $34
6. Philips Lightweight Premium headphones, $15
7. Garmin vehicle power cable, $24
8. Crosley Radio brushed-chrome wall phone, $49
9.Coby Electronics compact DVD player, $29
10. Ten One Design Pogo Sketch stylus, $14.99

Rite Aid’s online assortment is different than its brick-and-mortar mix and is not reflective of in-store CE stock.