What Will Walgreens Do Next?
It seems Walgreens has been in the news consistently over the past few months. Blockbuster announcements include its purchase of a stake in Alliance Boots to the recent acquisition of a collection of regional chains in the mid-South.
The news of Walgreens’ moves has been called everything from genius to gutsy. Eyebrows were raised when Walgreens struck the deal with Boots — since it put the chain in a debt situation Walgreens is not accustomed to — but also opens up a world of opportunities for international growth for both players. At first blush, the buy of USA Drug is curious since the chain is comprised of so many different format stores. However, buying the real estate is seen by some as easier than opening its own units.
Walgreens, some experts think, is generating so much news because for years it was seen as a stodgy, somewhat behind-the-times retailer. CVS was the chain known for breaking new ground — opening mini clinics and upscale beauty. Walgreens, at least for now, has been stealing the headlines. By doing so, many believe the chain is getting more attention from Wall Street. To finance the Boots deal, Walgreens needed to assume debt. It is widely thought the addition of Boots will pay off eventually. However, there are fears that as Boots products are integrated into Walgreens stores that the additional space required will put further stress on smaller brands that don’t have the mega advertising budgets to compete.
Boots has extremely strong house logos, especially Boots No. 7. These brands can flourish in Walgreens while also delivering high gross margins. While all eyes are on what Walgreens will do with Boots, there’s also speculation on if competing retailers will maintain Boots distribution.
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Beyond getting premium private labels and new stores in the mid-South where Walgreens is understored, the chain has a strong foundation with online sales thanks to drugstore.com, which also encompasses beauty.com and skincare.com. The chain has almost all the bases covered — U.S. expansion, international potential and online sales.
The one weak link, pointed out by many analysts, is the nagging issue revolving around its termination of the Express Scripts deal. Some even think the recent acquisition could give Walgreens additional leverage in dealing with Express Scripts, the largest pharmacy benefits manager. If Walgreens establishes a dominant position in a particular market, Express Scripts may feel more pressure to include Walgreens in its network. Walgreens just reported June sales that showed sales off 10 percent in stores open at least a year. It was a deeper slide than the 8.2 percent expected.
People, Places and Things
A few words with Stephen LaFrance, chairman and owner of Stephen L. LaFrance Holdings, Inc., as he sells his 144 stores to Walgreens. The stores were in eight states under the logos USA Drug, Super D Drug, May’s Drug, Med-X and Drug Warehouse. The acquisition also includes corporate offices, a distribution center located in Pine Bluff, Ark., and a wholesale and private brand business, for a total of approximately $438 million subject to adjustment in certain circumstances. The chain recorded sales of $825 million in 2011.
WWDBeautyNews: Tell us about the history of USA Drug.
S.L.: What is now USA Drug began from a single store I opened in Pine Bluff, Ark., in 1968 and has grown to more than 140 stores in seven states. We chose to sell our business to Walgreens not only because it is the premier drugstore company in our industry, but also because Walgreens will continue to provide our customers with the service and products they have come to expect. We are known for our customer service. I have loved every minute of my career these past 44 years, beginning as a pharmacist, then management and currently as owner and chairman. My wife and kids are telling me it is time to cash out.
WWDBeautyNews: Are your stores conducive to implementing the Look Boutique?
S.L.: We have stores with large cosmetics departments with the traditional brands and we also have stores with small front ends that are more apothecary stores.
WWDBeautyNews: Can regional chains survive in these days?
S.L.: Totally! We see many strong retailers such as Kinney Drug. There are opportunities to compete against major chains.
What’s In Store
Packaged Facts Report on Nail Care: The mass nail care market has grown by leaps and bounds over the last few years, dwarfing the relatively sleepy growth rates in other cosmetics categories, according to Packaged Facts’ new report on the nail care market in the U.S. Several intertwined factors are driving the market. A nail centric fashion culture has transformed women’s nails into stylish accessories, even as a continuing flood of innovative, fashion-forward nail care products empower women to affordably imitate nail salon effects in their own homes. Therefore, a growing population of women make frequent use of DIY nail care products.