WALGREENS’ NEW BEAUTY BLUEPRINT

Byline: Faye Brookman

NEW YORK — Walgreen Co., the nation’s largest drug chain based on sales volume, is opening stores featuring a larger and more open beauty department.
Many consider Walgreens the most successful merchant of beauty in the chain drug business. According to Walgreens’ annual report, the beauty category accounts for 8 percent of its drugstore sales. Sales for fiscal 1999 hit $18 billion.
Walgreens’ new look has actually been evolving over the past few years, according to Michael Polzin, company spokesman. The chain, based in Deerfield, Ill., was among the first drug chains to start opening freestanding stores featuring drive-through pharmacies.
By doing so in the early 1990s, Walgreens helped write a new place in history for drugstores — that of part pharmacy, part convenience store situated on high-traffic corners. That convenience aspect helped make Walgreens a major destination for beauty purchases.
Cosmetics has always been a focal point of a Walgreens store. It is traditionally one of the first departments a customer sees upon entry into the store. And while most chains have abandoned service, Walgreens is committed to beauty consultants in most stores.
In new or remodeled stores, Walgreens has enlarged the front to include a glass atrium to bring in more natural light. The redesign allows for beauty care to be enlarged by about 7 percent.
Overall, Walgreens’ stores are now 1,500 square feet larger than older stores. In the early 1990s, stores averaged 13,000 square feet. Today, Walgreens is opening 14,500-square-foot units.
The roof has also been raised. Stores following the latest prototype have a roof that is one foot higher than those of last year. That, in turn, has allowed Walgreens to raise its fixture heights to 68 inches — a method of getting more merchandise into the store.
The space between aisles in beauty has been opened up to make for a more comfortable shopping environment. “Customers stop shopping when they encounter too many butt brushes,” explained Paco Underhill, managing director of Envirosell Inc., an expert on shopping patterns. He said Walgreens’ new design helps eliminate the close quarters customers sometimes feel in chain drugstore beauty departments. Other wrinkles include editing out the canopy that used to overhang the cosmetics service counter. There are also brighter colors and recessed lighting throughout the department. Older stores had brown aisle signs that have been replaced by blue. The walls of the store are white with splashes of color identifying different departments.
Gone are tables that used to hold promotional merchandise. Store officials said the tables lead to clutter.
The new look has already translated into higher front-of-store sales for Walgreens. “Our sales increases are higher than grocery stores and discounters in key categories such as cosmetics,” noted Dan Jorndt, Walgreens chairman and chief executive officer. For the month of March, Walgreens’ same-store sales rose 8 percent. Total sales for the month jumped 15.8 percent to $1.8 billion, versus $1.6 billion a year ago.
Walgreens also strives to be among the first in the market with new beauty items. The chain has long outdistanced the market in the fragrance arena. During the past two Yule periods, when most mass fragrance sales were flat, Walgreens was up in the double digits.
Walgreens is now among only a handful of retailers selling Ultima II. Additionally, Walgreens has been willing to experiment with niche brands such as Fun and X-Tatic.
Walgreens has remodeled or opened 700 drugstores with the new wider aisles and roomier interior. Another 900 have a new graphics package with a brighter color scheme. The average age of Walgreens’ stores is less than seven years. Sixty percent of the chain now consists of freestanding units, and more than half of the stores have drive-through pharmacies. One-hour photo services are almost chainwide.
So important is convenience — including some food items — to Walgreens that Jorndt recently called the chain “7-Eleven on steroids.”
The chain, however, is also cautious about what it adds — and in which markets. Walgreens has adopted a merchandising strategy it calls “basic department management.” Eventually, all departments will use basic department management to tailor product assortments and shelf placement to individual stores and neighborhoods. “This is the ultimate in category management,” said Ted Gladson, president of Gladson and Associates, a planogramming expert. Added David Bernauer, Walgreens president and chief operating officer, “This system will use scanning information to tailor basic departments such as skin care to individual trade areas.” He said that Walgreens would eventually have separate planograms for every store in the country.
Walgreens will smash through the 3,000-store mark this May, with 450 new stores in fiscal 2000, including Walgreens’ debut in 16 new markets and three new states — Maryland, Utah and Wyoming.
According to Bernauer, 35 percent of Walgreens’ growth is in new markets. Baltimore is a new market where the chain plans to unveil 50 stores by 2004. Another is Atlanta, where there will be as many as 100 Walgreens by 2004. “With a few exceptions, we’re now in every major market in America,” he said.

While Walgreens continues on its impressive growth track, a competitor — Rite Aid — was given new life. A group of lenders agreed to a $1 billion credit line, which the nation’s number three drugstore chain said it will use to fix up stores and repay debt. The credit line supports Rite Aid’s turnaround plan and will give it more than two years to repay debt, according to Bob Miller, the recently named chairman and ceo.

When the National Association of Chain Drug Stores’ Annual Meeting convenes later this month, Alan Levin, chairman, president and ceo of Happy Harry’s, will already be NACDS’s chairman. Levin was scheduled to take over the gavel from Frank Newman, former chairman, president and ceo of Eckerd, who resigned for the top spot at More.com. The timetable was moved up by Newman’s departure. “Levin is well-known as a strong and effective leader within the chain pharmacy industry, as well as its government,” said NACDS president Craig Fuller. As vice chairman, Levin had been preparing to assume the duties of chairman. “The transition will be smooth,” said Fuller.

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