Walgreens Boots Alliance’s investment in its Beauty Differentiation program is paying off in its retail stores.
Speaking during the first-quarter analysts call, George Fairweather, WBA’s global chief financial officer and executive vice president, gave a nod to the beauty category along with the chain’s health and wellness business. Those businesses “partially offset” declines in consumables, general merchandise and personal care, he said.
“This is the sixth consecutive quarter that we’ve delivered comparable sales growth in the health and wellness and beauty categories.” The beauty category today represents a healthy 9 percent of WBA’s total retail sales.
WBA’s sales for the quarter ended Nov. 30 totaled $30.74 billion, up 7.9 percent from $28.5 billion a year earlier. The gain was 7.2 percent on a constant currency basis. In the Retail Pharmacy USA division, which encompasses Walgreens and Duane Reade, first-quarter sales jumped 8.9 percent to $22.49 billion from $20.66 billion in the year-ago period. Same-store sales rose were up 4.7 percent. However, front-end sales fell 2.8 percent overall and declined 0.9 percent on a same-store basis. The company continues to expect to complete integration of the acquired Rite Aid stores and related assets by the end of fiscal 2020, at an estimated cost of approximately $750 million.
Even with softening at the front end, beauty is delivering rosy results. Tweaks to its promotional strategies fused with a focus on higher-margin categories in beauty aisles helped enrich gross margins and gross profit for the quarter ended November 30, according to Fairweather.
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“We continue to invest in our Beauty Differentiation program and are encouraged by the results,” he continued. “During the first quarter, Beauty Differentiation stores performed stronger than in prior quarters. Beauty category sales in these stores continued to be markedly better than in other stores resulting in higher gross margin and higher comparable retail sales.”
WBA has completed the introduction of the enhanced beauty offer, punctuated by many of its homegrown brands such as No. 7, in an additional 1,000 doors bringing the total to 2,900.
WBA’s own brands are clicking on all cylinders. Fairweather said initial positive reception to the company’s YourGoodSkin encouraged it to roll the skin care range out to all Beauty Differentiation doors. And following the success of extended assortments of No. 7 and Soap & Glory, WBA is rolling those brands out to more than 4,400 stores. “Given how well our beauty offering is received, we are working to widen the range of products offered in our Beauty Differentiation initiative,” Fairweather said.
WBA’s executive vice chairman and chief executive officer Stefano Pessina said the company is still at the start of a blueprint to fine-tune the merchandising, products and service offering of its retail business. “I believe we are about halfway through this process and it is bringing continual record of growth while we roll out our vision for the future,” he said. The chain is keeping a close ear to the ground to determine what its shoppers want to define what stores will look like in the future. The complete transformation will take time, he added, but have a big payoff.
A glimpse of the future will bow in 2018 as WBA deploys the first pilot store showing off “all the work we have done [including in beauty] in a single format,” said Pessina. The results will be scrutinized before rolling out chainwide.
The company also noted advancements in its Walgreens mobile app which has been downloaded 50 million items since its launch.
While pleased with the positive trajectory, industry experts think WBA has more heavy lifting to do, especially in the brutally competitive beauty business.
“We believe that the company has the potential to do a great deal better in retail, and as a first step should find ways of competing more effectively with high-growth beauty retailers like Ulta and Sephora,” stated Neil Saunders, managing director of GlobalData Retail. “With the firepower of its own brands, like No. 7, behind it, Walgreens is in a unique position to create a compelling proposition.” However, he said efforts are notable but “execution in stores is somewhat lackluster.”