A shopper at the Walgreens on 250 S. Wacker Dr. in Chicago. (Scott Strazzant/Chicago Tribune, File)
|By Sandra M. Jones | Walgreen stores are about to get a new look as the drug store chain expands a test to make the stores more open, more colorful and easier to shop in.
The Deerfield-based company is adding more food and wine, expanding its beauty aisles, and preparing to add electronics this summer. The retailer is also lowering the heights of shelves and installing bigger and more colorful signs to help shoppers navigate the store.
The new format, called customer centric retailing, is slated to roll out to 2,500 to 3,000 stores by this fall from 700 now, said Walgreens CEO and President Gregory Wasson in an earnings conference call Tuesday.
• Walgreens profit up 4.6% on record sales
The company concentrated its first test in Houston and Dallas. Wasson
declined to reveal where the next test market will be.
“As we’ve said before, this is an ongoing process with many checkpoints along the way to allow us the opportunity to tweak and refine as needed,” said Wasson. “As we move into the next phase, we’ll continue to build sales, take work out of stores, lower inventory and most importantly, improve our customers’ overall shopping experience.”
As part of the makeover, Walgreens has eliminated about 3,500 products from each store to focus on fewer, better selling items. The move took $500 million of inventory out of the chain and lowered labor costs by cutting down on restocking work.
Walgreen relies on sales at the front end of the store, the industry term for everything that doesn’t come from the pharmacy, for almost 40 percent of its revenue.
Sales at the initial 31 pilot stores are up 2 percent, outperforming a control group of stores and suggesting that the makeover will spur revenue growth, Wasson said. Market share in the Houston and Dallas remained unchanged to up slightly as the stores changed over, a result the company said was encouraging. The cost to convert each store is about $40,000 to $50,000.
While only 30 percent to 40 percent of Walgreens stores will make the change to the new format this year, all of the 7,180 drug stores nationwide will dedicate more space to skincare and vitamins. And 5,000 stores are on track to carry beer and wine by the end of the year.
“We believe initiatives to improve both shopping experience and inventory management remain on track,” said Standard & Poor’s equity analyst Joseph Agnese, in a Tuesday report, raiting Walgreen shares a “buy.”
The details on the store makeovers came as Walgreens reported its second fiscal quarter results. Net income for the quarter ended Feb. 28 rose 4.6 percent to $669 million, or 68 cents a share, from $640 million, or 65 cents, a year-ago. The latest quarter included restructuring charges of 2 cents a share.
Sales rose 3.1 percent to $17 billion.
Sales at stores open at least one year, a key retail metric, fell 0.2 percent from the year-ago quarter.
Front-end same store sales fell 1.6 percent, dragged down by the weak demand for discretionary goods and by lower demand for cough, cold and flu products, the company said.
Pharmacy sales rose 3.2 percent as the company sold more 90-day prescriptions in stores, an offering previously available only by mail. Pharmacy same store sales rose 0.6 percent.
Walgreen shares rose 62 cents, or 1.8 percent, to $35.95 in late afternoon New York Stock Exchange composite trading.