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 selection.”
Walgreens is offsetting that to some extent by offering bigger-ticket and highermargin tier one products online. Recent online-only offerings at Walgreens.com 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."