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Walgreens Emerges As Unsung Hero Of Consumer Electronics

DEERFIELD, ILL. — With all the
clamor over 3D, IPTV and other exciting
new technologies, it’s easy to lose sight of
Walgreens, a quiet, unsung channel-leader
that steadfastly sells tens of million of
dollars in basic CE accessories and commodity
products each year.

While hardly glamorous, the drugstore
chain’s diverse assortment of batteries,
chargers, blank media, cables,
flash memory and photo services helps
support bigger-ticket items purchased
elsewhere, while providing critical sellthrough
for mass-channel vendors like
Jasco and Coby.

“Walgreens is a hidden success story,”
said Adam Levin, chairman/CEO of
Levin Consulting. “They’ve become the
new general merchandise store and move
a lot of CE product, particularly around
holidays like Christmas, Mother’s Day,
and grads and dads. But they also do well
all year ’round on accessories.”

Stephen Baker, industry analysis VP
for The NPD Group, said Walgreens,
like the rest of the drugstore channel,
“plays a promotional and convenience
role in CE sales,” and owes much of its
success to the “easy, quick shopping experience
and the local nature of the stores.”

Walgreens’ startling growth track began
in 1901 with its first location, a 1,000-squarefoot
neighborhood pharmacy founded on
Chicago’s South Side by Charles Walgreen.
Building upon the basic retail tenets of
outstanding customer service, innovative
merchandising and store displays, a targeted
and affordable assortment — and a killer
malted milkshake — Walgreen had, by
1929, grown the business into a multiregional
chain with 525 stores.

Today, the company is the largest drugstore
chain in the nation, with more than
7,100 locations across all 50 states and fiscal
2009 sales of $63 billion.

CE sales came to $74 million in calendar
year 2008, according to the annual
TWICE Top 100 CE Retailers rankings,
where Walgreens has long been a steady
presence and placed at No. 76 in 2009.

Levin, who has regularly hosted Walgreens
at his annual Electronics Retail
Summits, which help vendors and dealers
connect, said the chain’s CE presence
stems from its heritage in photo-finishing
and low-end film cameras. “They
found that CE draws traffic,” he said,
and expanded the assortment accordingly,
especially as electronics products
became more mass-market oriented.

While digital imaging stole some of
the thunder from photo-finishing, the
category remains a cornerstone of its CE
business and continues to occupy significant
real estate within stores, where it is
adjacent to the electronics wall.

“They have regrouped somewhat,” noted
NPD’s Baker, “maintaining a place in
the photo-finishing market and always
looking to leverage that with a small, lowpriced,
targeted camera selection and related
product like memory cards.”

Walgreens has also leveraged its omnipresence
to become a convenience location
for consumables like printer ink and paper,
Baker observed. “Those have been categories
that have done well in the past in these
stores because of their ubiquity. Drugstores,
especially Walgreens, have also been forward-
thinking about their opportunity in
consumables through products like ink-refi
lling stations, which Walgreens was the
first to embrace,” he said.

The balance of Walgreens’ CE offering
includes low-end digital cameras, digital picture
frames, CD and MP3 players, docking
stations and pre-paid mobile phones, which
have become “a consistent week-in, week-out
traffic driver,” said Levin, and a regular presence
in its Sunday circulars.

According to Baker, serving as a highvolume
convenience location and limiting
its merchandise mix to best-selling categories
with high unit-sale velocities allows
it to sell “headphones, telephones
and other relatively low-tech, easy-to-use,
low purchase anxiety products” at low
absolute prices.

The strategy, however, has its limitations.
“In general, they have only a limited
growth opportunity because, despite
[Walgreens’] ubiquity, products like these
are increasingly found in discounters, mass
and general merchants as well,” Baker argued.
“Convenience can only be so successful
as a strategy when Walmart has
3,500 stores, there are 3,000 office-supply
stores, and thousands of RadioShacks,
and Dollar-type stores in the U.S., all of
which cover some segment of this product

Walgreens is offsetting that to some extent
by offering bigger-ticket and highermargin
tier one products online. Recent
online-only offerings at
include Nikon’s Coolpix S70 point-andshoot
digital camera for $350; Aiptek’s Action
HD GVS 1080p camcorder for $250;
a 500GB external hard drive from Seagate
for $160; and Creative Labs’ GigaWorks
T40 Series II desktop speakers for $150.

Looking ahead, the company is also
particularly well-positioned as the No.
1 pharmacy chain to tap into the growing
electronic fitness category as the U.S.
population continues to age.

Walgreens Lauded For Duane Reade Buy

DEERFIELD, ILL. – Walgreens’ $1.1 billion acquisition of New York metro area pharmacy Duane Reade is getting good grades from analysts.

“It’s a great move,” observed Adam Levin, CEO/chairman of Levin Consulting. “Duane Reade is very strong in the New York market and Walgreens will learn a lot from them.”

Levin said both chains will benefit from the merger, as “Walgreens will be able to bring those operational insights to its stores in other markets, while Duane Reade will benefit from Walgreens’ supply-chain efficiencies.”

Duane Reade generated $1.8 billion in total sales last year from 257 locations throughout the New York City region. The chain, named for the lower Manhattan cross streets where it opened its first store in 1960, has the highest sales per square foot in the retail drugstore industry, Walgreens said.

In a statement, Walgreens president/ CEO Greg Wasson said, “Duane Reade is a compelling strategic acquisition that will immediately provide Walgreens with a leading position in the largest drugstore market in the U.S.”