WALGREENS, CVS GOING HEAD-TO-HEAD
NEW YORK — A battle of the drugstore titans is brewing. While many mass merchants are struggling to survive, Walgreen Co., based in Deerfield, Ill., and CVS of Woonsocket, R.I., are flourishing and expanding. With that growth, the two chains are butting heads in more markets.
Recently, for example, CVS moved in on Walgreens’s home turf in the Chicago area. And, this week CVS announced plans to enter two new markets where Walgreens is a power — Phoenix and Las Vegas. Phoenix is the 11th largest U.S. drugstore market; Las Vegas is the 38th. CVS expects to begin opening stores in Las Vegas by the end of this year. Walgreens has plans to open a store in Manhattan, a market CVS infiltrated several years ago. The chain has also started opening new stores in New Jersey where CVS is strong. With fewer untapped states to tackle, the two behemoths are expected the lock horns on more and more intersections.
Both are bucking the mass market retail trends as far as sales growth and expansion. With chains such as Bradlees and Wards shutting down and J.C. Penney Co. looking to reposition and perhaps spin off the Eckerd drug chain, CVS and Walgreens are both posting impressive sales gains. They join Target and Wal-Mart as the shining stories of mass retailing.
Walgreens’s same-store sales rose 15.5 percent in January with total sales gains exceeding 21 percent. CVS Corp. recently reported a 12.4 percent boost in fourth-quarter earnings and inched closer to topping Walgreens, the largest drug chain in sales. Walgreens racks up sales of $21 billion per year, versus $20.1 billion for CVS.
Although both are succeeding, there are fundamental differences in approaches to beauty retailing. Walgreens remains one of the few drugstore retailers in America committed to departments staffed with trained clerks. Although CVS flirted with the concept of service in a handful of stores, the chain is predominately self-service. A new prototype bowed several years ago that has been refined along the way. However, Walgreens sticks closely to its tried-and-true — and successful — cosmetics formula. The chain’s prices tend to be higher than competitors in many cases, but stores have service and good in-stock conditions.
CVS has been more experimental. The chain has played with a variety of new looks in beauty — a function in some cases of adapting the practices of chains it purchased. For example, CVS acquired Austin Drug of Melville, N.Y. The chain had been known for vast arrays of designer fragrances and informed cosmeticians. CVS tapped some of those nuances for those stores to keep the existing customer base happy. CVS has also been at the forefront of testing universal fixtures, elegant wood cabinetry and private labels. CVS continues to tinker with new ways to cultivate a teenage following with a department called Grl Lab. The chain also seeks unique ways to build beauty volume by promoting the department via signage throughout the store. For example, signs in greeting cards suggest buying a fragrance as a gift with the card.
Both chains credit beauty categories with contributing to recent growth. Walgreens’s executives singled out skin care and fragrances in a recent press release about monthly sales gains. Sources report that Walgreens rang up moderate gains in fragrances last Christmas at a time when most competitors saw a decline.
CVS pointed to strong gains in color promotions and skin care over the past few months. Both chains produce a higher percentage of sales in beauty than the industry average. Cosmetics at Walgreens, in fact, is estimated to approach 10 percent of sales. The industry average is less than 6 percent.
This week, CVS announced a loyalty program rolling out to its 4,100-plus stores called ExtraCare. Customers choosing to participate are privy to special coupon offers and health information. “We’ve tested the program in six markets and customers have responded very positively,” said Larry Zigerelli, executive vice president of marketing at CVS. “Seventy-five percent of surveyed customers in these test markets indicated they shop at CVS more often because of ExtraCare.”
Boy George has eyes for Max Factor and executives at P&G’s makeup artist cosmetics brand are flattered. Quoting Radio Times magazine, Reuters reported this week that the flamboyant musician has an unfulfilled ambition — snagging a role in the cosmetics world. “I’ve been wearing makeup for nearly 25 years so I think I deserve a campaign,” said George. Particularly, he mentioned Max Factor as a brand to his liking.
“Boy George’s chameleon-like ability to transform himself with makeup certainly makes him an intriguing candidate for a campaign. We’ve also noticed how he has perfected his makeup look over the years — especially his lipcolor,” a Max Factor spokesperson told WWD. She added the brand’s new longwearing lipcolor could be an ideal fit. “Though Lipfinity won’t stay on his lips for 25 years, it will last through dinner, dessert and an evening concert.”
Beautyjungle.com may not be around anymore, but some of its concepts are living on in a new company founded by former Beautyjungle.com executive John Devine. In addition to selling merchandise, Beautyjungle had started to offer logistics programs for both retailers and midsized brands in a business-to-business format. Devine’s new firm, BeautyWorks, picks up on that through a unique partnership with a company offering manpower and another equipped with warehouse space. Few companies, especially the independent manufacturers, want to worry about logistics, said Devine who is president of the new firm.
Johnson & Johnson has teamed up with Danone-owned water company Evian to create Evian Affinity, a nine-item skin care line. “There’s a synergy between the holistic work of Danone on internal beauty and the work of Johnson & Johnson on the exterior,” said Christian Hoffman, worldwide chairman of Johnson & Johnson consumer and personal care group. The products are $4 to $7 and come in Ziplock-style packaging. The line will be available in department stores and supermarkets in France in March. Rollout to other markets will depend on its success in France.