Walgreens’ recently appointed chief executive Greg Wasson unveils his bold vision to reinvigorate the mass giant, with an ambitious beauty strategy that could reinvent the entire category.
Greg Wasson isn’t one for easing into the job. Since taking the helm as president and chief executive officer of Walgreen Co. in February, Wasson has hit the gas—hard—on the retail giant’s efforts to accelerate growth. His goal is audacious: To reinvent Walgreens from a sprawling $59 billion chain of 6,857 drugstores powered by a one-size-fits-all strategy into America’s health and wellness epicenter that tailors its mix to specific markets. “We want to be the most convenient provider of consumer goods and services, pharmacy and health and wellness services in the country,” says Wasson. “The advantage we have is the best real estate in America and an iconic brand.” Though in the job less than four months, Wasson has already begun aggressively pursuing his goals.
He’s rolled out a new store prototype, implemented a major cost-control plan and recruited top executives from the outside, a dramatic departure from Walgreens’ long-standing culture of promoting from within. And the ceo is just getting started. The items on Wasson’s to do list—including spiffing up Walgreens’ beauty image—call to mind the frenetic pace of change being implemented by President Obama’s hard-charging administration. As with governing, sitting idly by as the world changes isn’t an option for Walgreens. Prior to Wasson being promoted to the top spot, the confidence of investors was rattled in late 2007 when the retailer reported its first quarterly profit decline in 10 years. Moreover, Walgreens is engaged in a heated horse race with its number-one drugstore competitor CVS Pharmacy, which beefed up its revenue and door count with the acquisition of Longs Drugs last August. CVS now has more than 6,900 stores and revenues of $48.9 billion. Rite Aid, the third place national drugstore chain, lags behind the leaders with more than 4,900 units and revenues of $23.3 billion.
Each of the big three stock many of the same brands in their beauty departments, including Procter & Gamble’s CoverGirl, Olay and Pantene; L’Oréal’s L’Oréal Paris, Maybelline New York and Garnier, and Revlon Inc.’s flagship brand Revlon and Almay. Wasson’s mission is to reignite growth, manage Walgreens through the economic downturn and distinguish Walgreens from its similarly positioned competitors.
The ceo—an avid long-distance runner who has competed in both the Chicago and Boston marathons—views it as the ultimate competitive challenge. “It’s my competitive nature to get this company back to double-digit [earnings per share growth] and strong shareholder returns,” says Wasson during a wide-ranging interview in Walgreens’ Deerfi eld, Ill., headquarters. Sitting at a conference table in his sparse corner office, drinking copious amounts of coffee during the conversation, he continues, “You do that by truly becoming a more consumer-focused provider.” Beyond the beauty aisle, Walgreens continues to outfi t stores with health and wellness clinics, manned by nurse practitioners. The move, says the retailer, is the last piece of the puzzle to offer a complete range of care, extending its pharmacy services one step further. Walgreens has clinics within 343 stores, and 373 work site clinics. Part of Wasson’s strategy relies on a major costcutting initiative, designed to wring out $1 billion in annual costs by 2011.
This effort includes trimming 1,000 employees at the executive and store levels, and initiatives to build more effi cient processes and a focus on strategic sourcing. Although he began his career at Walgreens 29 years ago as a pharmacy intern while a student at Purdue University, Wasson, 50, is the first to admit the need for change. “One of the things we might have done, even in the pre-recessionary period, is not kept up with some of the trends as quickly as we could have or should have,” he says. “We give ourselves amnesty to the past,” he continues, employing a term used internally at Walgreens. “We’ve been a very successful retailer and we have a lot of runway left….There’s aneed to change and take advantage of opportunities.” As a Walgreens lifer, Wasson understands the challenges better than most. “The balance I have to [find is between] too much change, too quickly and too soon versus not changing quickly enough. Every ceo out there is challenged with that.” The dire situation caused by the recession has only solidifi ed the need for quick action. “Our industry is changing quickly, and retail in general is changing quickly,” says Wasson. “Consumer habits and trends have been evolving and this economic period that we are in now is accelerating that.” When Wasson says change, he means it:
The ceo is fundamentally shifting the focus of the company. For the past two decades, Walgreens relied on new stores to fuel growth, opening locations at what it calls “the best corners in America.” By this fall, it expects to have 7,000 stores in the U.S. and Puerto Rico. Going forward, however, the plan is to dramatically slow new store openings and instead improve existing ones. Late last year, Walgreens said it will slow its organic (or nonacquisition-related) store openings to between 4 and 4.5 percent growth in 2010 and between 2.5 and 3 percent growth in 2011. “Historically we’ve had a very good real estate strategy,” says Wasson. “We got to the point where we were opening a store every 17 to 18 hours. One of the reasons we announced we were going to slow our store growth down from 9 percent to 2.5 to 3 percent by 2011 is we wanted to make sure we continue to operate those drugstores with excellence. There is a potential to really improve the experience within the store by focusing on the existing stores versus continuing to use that capital to open more stores.” To that end, the retailer is implementing a plan it calls the Customer Centric Retail Initiative, designed to overhaul the front-end of its stores—where beauty lives. Wasson considers it his number-one priority. “It’s going to make the shopping experience as convenient as our locations are,” he says. “[It’s to] stay relevant and to make sure we have the right assortment and the right experience.” Though the plan is in its infancy and Walgreens is tight-lipped about details, industry executives are already applauding the pending transformation. “We’re very excited about the energy that Greg is bringing to reinvent the store, and we’re very pleased that beauty will be a cornerstone,” says David Waldock, senior vice president of business and sales development, L’Oréal Consumer Products Division.
By the start of this month, Walgreens had converted 35 stores to the CCR format. Plans call for analyzing their performance and making necessary tweaks, then transforming another 300 to 400 doors by Oct. 1, before the pivotal holiday selling season. The new format marks a striking difference from existing stores, replacing high, sometimes crowded shelves with lower gondolas, which allow shoppers to see across the entire store, straight back to the pharmacy. Shelves have been lowered to 66 inches from 72 inches or higher, and the lighting kicked up a notch to give CCR stores a more streamlined look. Upon entering the store, shoppers will see beauty to their right. New signage protrudes from shelves to help them navigate. For instance, along the hair care aisle, the white and red signs may read, “Styling,” “Color,” “Treatment.” The cosmetics wall is backlit and displays photos of brand spokeswomen. Along the skin care aisle, products are displayed in light boxes, and signs list educational information on key products. “It’s health and wellness with a strong sense of fun, excitement and newness,” says Wasson. As part of the process, Walgreens has reevaluated its assortment, drastically cutting stockkeeping units in certain categories. “I don’t want to lose the uniqueness that makes Walgreens fun,” Wasson says. “We’re known for being one of the fi rst to market with new items, and people like to come in and fi nd new items—including the seasonal and holiday items.” Still, tightening the assortment requires diffi cult decisions about what products or brands stay and which ones go. “There are departments that have picked up space,” he says, noting the fi rst round of inventory reductionshas trimmed about 17 percent of sku’s across the entire store. “There are departments that have had none or very little cuts. And then there are some that have had 30 to 40 percent reductions.” Some cuts are more obvious than others. For instance, Walgreens used to stock nine or 10 different flashlights.
“Our industry is changing quickly, and retail in general is changing quickly. Consumer habits and trends have been evolving and this economic period is accelerating that.”
No longer. “Now we have a couple of sizes, but enough to satisfy [consumers],” Wasson says. “Therefore we can devote more space to [where] we do need either a deeper assortment or additional brands.” The retailer also is taking a fresh approach to merchandising to improve the shopping experience and prompt customers to increase the item count in their baskets. For instance, in the dental care category, the CCR stores group all whitening products—mouthwashes, toothpastes, strips, devices—in one cohesive section, set apart with signage. It’s a departure from the old way of merchandising, where whitening toothpastes are next to the general toothpastes, the whitening washes with the mouthwashes, etc. “It’s easy to find, it’s well-signed and, hopefully, if someone is using a paste maybe they’ll pick up a wash, too,” says Wasson, noting a similar approach is being considered for vitamins and hair care. In recent months, Wasson has repeatedly touted the starring role that beauty will play in the CCR concept, although he’s yet to unveil details. In November, Walgreens cut the ribbon on its fl agship store in New York’s Times Square. The beauty department within the 16,000-square-foot store seems to herald Walgreens future approach to the category.
Located just off the escalators on the second floor of the three-level store is the brightly lit L’Oréal Paris boutique. Measuring 320 square feet, the L’Oréal concept includes slide-out shelves, product testers, floor-to-ceiling visuals, streaming video and L’Oréal-trained beauty advisers. Beyond the L’Oréal Paris area, which features a center island for makeovers, a selection of specialty beauty products —gift sets and naturally positioned brands such as Burt’s Bees, Jason and Alba—are stocked on low-profile display units. Adjacent to the display is a custom-made end-of-aisle display for Yes To Carrots, which launched in the U.S. at Walgreens. Beauty advisers wear all black, as opposed to the store’s standard navy smock for associates. The remaining beauty area stocks the major mass lines, as well as Walgreens exclusives, including BioInfusion and Sally Hershberger hair care, which is housed in a 3-foot salon hair care section. A reenergized beauty department is integral to Walgreens’ very success as a retailer, believe many. “Beauty is really the best place for a drugstore to differentiate itself from the drugstore down the street,” says Ido Leffler, ceo of Yes To Inc. “It’s the way to make the drugstore environment unique, and it also makes it sexier. It encourages people to spend more time in the store.” Wasson, for his part, is bullish on beauty, particularly given what he sees as a game changing competitive advantage: Walgreens’ extensive network of in-store beauty advisers. “There’s an opportunity for us to continue to leverage that convenience—and the fact that we have [beauty] advisers in every store—to begin to look at our beauty departments in less of a one-size-fits-all philosophy,” he says.
First comes refreshing the stores with CCR. “Then we have the opportunity to take that footprint and consider how we can make it more relevant,” he continues. “Are there select stores where we can create a different beauty experience across the chain?” He cites the Times Square store as an example. “We’re offering a more upscale department. We do a lot of testing, we do samples, we do makeovers. Our beauty advisers go through extensive training with our key vendor partners,” he says. “It’s just the beginning, frankly.” Some beauty firms have questioned just how plugged in Wasson is into the industry. The ceo says very, an interest he honed as a young store manager in Houston, just a few years out of pharmacy school, awaiting a visit from his district manager. “I ran a good-looking drugstore, but you always spiff it up when the boss is coming,” recalls Wasson.
Therefore, he was stunned to learn his district manager was less than impressed with the beauty department. “It wasn’t as sharp as the rest of the store,” Wasson admits. “He said to me, ‘Greg, your store looks great, but your beauty department isn’t as strong, and I think I know why. You don’t use the stuff. You need to get over here and learn this side of the store as well as you know the rest.’ From that day on, I realized the potential we have in our beauty area, because 75 percent of our shoppers are female.” He took the lesson to heart. Wasson’s vision for beauty is as audacious as his plan for the company overall. Wasson sees the Times Square store as the first step to courting prestige brands sold in department and specialty stores. Earlier this year, he delivered the keynote address at the Personal Care Products Council—a meeting heavily attended by prestige beauty executives—and the conference seems to have whet his appetite for luxury. “I met with a lot of folks and there was a lot of interest afterward and some follow-up with some key [brands],” he says. “There was some intrigue about what they heard and what we are thinking about and what we have the potential to do.”
Though prestige brands—particularly the big three of Estée Lauder, Clinique and Lancôme—have historically shown themselves unwilling to cross distribution channels, Wasson believes the recession may help change attitudes. “We’re all struggling in this economy right now,” he says. “I’m glad I’m selling health and wellness items instead of high-end goods. Department store traffic is down. Some of the prestige [brands’] sales are down as a result. I’d like to think at some point in our near future we could offer a new outlet. “I understand it’s a two-way street,” he continues. “We have to provide a department that would allow folks to feel more comfortable with us carrying their products.” Wasson is nothing if not a realist. Asked how many stores he envisions with a prestige beauty presence, he replies, “Is it 10 to 20 percent? Instinctively I would think it would be that many doors, but we haven’t done enough research to truly know….I want to move away from a one-size-fits-all strategy. We’re in every neighborhood in this country—unlike other retailers.
“Our shoppers would welcome the opportunity tobuy whatever they may beable to find in a department store elsewhere.”
We’re in urban America, we’re in suburban America, downtown America and there’s an opportunity to fit the communities with the right experience and the right departments.” Walgreens is not alone in its pursuit of an upscale beauty strategy. CVS has been doggedly pursuing the same concept for the past six years. In 2003, CVS began updating its stores with signage, lit shelves in the beauty area and 60-inch-high gondolas. Comparatively speaking, Walgreens is just rolling out its 66-inch high gondolas now. Late last year, CVS launched its Beauty 360 retail concept, stocked with about 40 premium-priced brands including Mario Badescu and Cargo cosmetics and measuring 3,000 square feet on average. Wasson nods to CVS’ efforts—which have required years of knocking on doors and cold-calling—acknowledging, “They’re probably looking at some of the same opportunities that we are. I applaud them in certainly trying different things.” Wasson says the Walgreens’ point of difference will be leveraging its existing store network. “I would be focusing more on what we can do within our existing brick-and-mortar versus a different concept of any type,” he says, adding that Walgreens major distinction in beauty is its 22,000 to 25,000 beauty advisers across the chain.
Wasson says Walgreens has yet to draft an upscale beauty concept, but the possibility obviously excites him. “It’s almost like we’ve got a great canvas that we can begin to paint.” Walgreens’ flirtation with moving upmarket has caused some grumbling in the mass market as it trims the assortment and, in some cases, brands. As a result of its recent overhaul, the retailer has severed ties with Physicians Formula, Prestige Cosmetics, Bonne Bell and Jane Cosmetics, which filed for Chapter 11 in April. Explaining how Walgreens decides what to keep and what not to, Wasson says, “By item and by category and by line. We look at everything from relevancy to profitability to fit. “The easiest way to look at it is, if the line is completely underperforming, then that’s the fi rst to go,” he continues. “But we also have to think about the mix and the assortment so we have a complete offering. We dabbled a little bit in [prestige] with our European beauty offering the last couple of years—and with some moderate success. There’s a tremendous opportunity for us to do a better job.” Wasson is referring to the European Beauty Collection, a group of seven relatively unknown premium priced brands it launched in 2006 in about 1,000 doors.
The effort is now in the process of being discontinued. “The lessons learned would be awareness, marketing, education, training of our beauty advisers, location—all of the above,” says Wasson of the venture. “I do believe that our convenience [coupled with] the right experience means we can sell product of any type. Our shoppers would welcome the opportunity to buy whatever they may be able to find in a department store elsewhere. The opportunity to create that environment lies with us as well. I would like to look back in two to three years from now and have provided an additional channel for manufacturers to sell premium products. “I know we can,” he continues. “I don’t know what that looks like yet. But I do know we’ve got the locations that shoppers are looking for and deem convenient.” Polishing Walgreens’ image as a purveyor of upscale beauty requires marketing muscle—and plenty of it. Wasson recruited Kim Feil as vice president and chief marketing officer to spearhead efforts. She was most recently senior vice president and chief marketing officer for Sara Lee North America; prior to that, Feil was a vice president of marketing at Kimberly-Clark and before that spent seven years at Information Resources Inc. Wasson, who frequently praises Feil’s research skills, says since coming on board she has sharpened Walgreens’ marketing sense, most notably by carving out fi ve key customer profiles.
They are: the party-attending Sociable Stella; the busy mom Active Amy; the energetic and loyal Effi cient Eileen; the health-focused Merry Maria, and the traditional Care-Seeking Carol. “In the past we had a good idea of who our consumer was and how to merchandise, but now we’ve done some real good work in actually segmenting and understand what the key five consumer segments are,” says Wasson, “who they are and how we can more effectively merchandise to them.” He also plans to align Walgreens’ purchasing department with marketing. The purchasing department now reports to Bryan Pugh, vice president of merchandising, who joined Walgreens in October from Tesco USA. Many industry insiders says Wasson has entrusted Feil and Pugh with the fate of the frontend of the stores. The fact that they’re outsiders at a company, which has historically had a long-standing culture of promoting from within is no accident. “We had become a little insular as an organization,” he says. “When you’re successful and you’ve got a solid strategy that’s working and producing double-digit [earnings-per-share] year-over-year, there’s a tendency to do that. By becoming more external and working more with our vendor partners, more with our pharmacy clients, working with trade associations, there’s a lot of opportunity to become more external.”
That being said, Wasson has been actively focused on integrating the old and the new. “The key isthe right blend,” he says. “We have such a strong culture and a company full of winners who really want this company to succeed. The neat thing is when we bring in some new talent with different skill sets and core competencies that we don’t have….My responsibility is to only bring in folks from outside when I believe there is an area that we need to shore up or bring in some new thinking.” He later adds, referring to a tip from a book penned by Procter & Gamble’s A.G. Lafley, “It’s a ceo’s responsibility to bring the outside in.” Still, with the outside coming in, many longtime executives have exited the company. In May, three out of Walgreens’ four general merchandise managers departed, namely Bill Hubbs, who oversaw seasonal and sundry; Arnie Silver, responsible for consumables,and Kathy Steirly, divisional vice president/general merchandise manager for beauty.
Their divisions are temporarily being overseen by Dave Van Howe, vice president of purchasing, while Rachel Bishop has been named divisional vice president/general merchandise manager of strategic planning and analysis. Bishop hails from McKinsey & Co., where she worked with Walgreens on its CCR initiative. In the tight-knit mass market beauty world, Steirly’s departure was seen as abrupt and unexpected, as vendors said she championed the changes taking place at Walgreens. Asked whether her role no longer fits within Walgreens’ updated vision, Wasson praised her contributions, while acknowledging the changes being made. “A lot of where we are going is coming not only from the merchants, but also our marketing and research and the consumer work that we are doing so we know more about what she’s looking for and how to merchandise and meet those needs,” he says. “Kathy was doing a great job, but sometimes to accelerate change you need someone to come in and look at things in a different way and bring another perspective, new ideas and fresh thoughts. That’s what I’m looking for.” In the midst of rapid-fire change at Walgreens, the key to getting company employees onboard is communication, says Wasson. “We’ve articulated our strategy over the last two to four months both internally and externally. It’s a lot of change management and it’s communication.”
Wasson recalls that over his daughter’s winter break from college, she sheepishly told him she planned to change her major from marketing to communications. “She said, ‘Dad, I hope you’re not upset.’ I said, ‘90 percent of what I do every day is communications.’ So, I applaud her. Communications is a big priority. I try to communicate as much as I can because I believe that the more people understand the big picture and why we are trying to do what we’re doing, it helps in the day-to-day decision-making.” Reflecting on his rise from intern to the corner office, Wasson says, “I have a real passion for this company that I developed early on….People ask me a lot, ‘Did I aspire to get to this corner?’ No, I didn’t. I grew up in rural Indiana and I knew how to work hard, and how to treat people. Every job I’ve had in the company, I’ve focused and I’ve worked hard because I wanted to be the best I could.” He has also found motivation by being competitive with himself—and others. “I am competitive. You can compete and you can be ethical and you can be fair, but you can compete like heck,” says Wasson, flashing his charming Midwestern grin. His challenge will be stoking the competitive fire within the Walgreens organization.
To do that, Wasson prefers a “hands-on” management style. “I like a flat structure, but also to have a very solid strong team that I can manage as a team,” he says. “Most of the time—90 percent or so—you’re going to reach the right conclusion as a strong team with the right input. But people know I have no problem making the decision.” For Wasson, looking externally could be lauded as a courageous move should his plans to sharpen Walgreens’ edge payoff. His pace of change may be fast, but as one vendor says, “Walgreens is like an aircraft carrier. It’s hard to steer. For a retailer of Walgreens’ size, ‘fast’ still takes a long time. If it moves slowly, then change will never happen.”