Changing the game of drug store merchandising
"You’ve got to skate to where the puck is going, not to where it’s been.”
That’s how Bryan Pugh, who is Walgreens’ VP and chief merchandising officer, described how the merchandising department functions at Walgreens. It’s a fast-moving game. It’s got to be fluid. And if you lose focus for even one second, you stand the chance of being railroaded into the boards and becoming less of a force in the game.
Walgreens has been actively identifying possible category opportunities by store segment and testing those categories across a manageable sample set of stores. If appropriate, the company identifies how best to roll those new opportunities across its almost 8,000-strong store base.
Beth Stiller, Walgreens division VP for category strategy, innovation and space management, does a lot of the heavy lifting in optimizing the merchandising to the stores. “Good retailers always have someone reporting into the merchant that is a neutral entity,” Pugh said. “When we look at remodels or we look at new stores, her division [reviews] the data and then sits down with the [merchant] teams,” he said. From there, they match the best mix according to store location, projected volume, selling space and customer demographics.
Pugh added, “I am very thankful that we have a very solid merchandising team with solid leadership in the GMM roles: Shannon Curtin on beauty, personal needs and seasonal; Robert Tompkins on health and wellness; and Steve Broughton in food and convenience goods. Our category managers and category specialists are making tremendous progress over the last year, and we are looking forward to continuing to change the traditional drug store into a health and daily living destination.”
With two-thirds of Walgreens’ locations being suburban stores at great corners with a drive-through pharmacy, Pugh and his team help other locations stand out, Pugh said. “There is a grocer on the same corner. There is a dollar store down the street. The competitive set is very similar,” he said.
The remaining third of its store base is very different, Pugh said. “It’s Times Square. It’s the beach store. It’s the Arkansas marina store [that’s] down the street in a little town close to a lake, and during the summer months, you do incredible float business, offer coolers, cookout gear.” These stores trade very differently, Pugh said.
The drug store company currently has four flagship locations, including a Duane Reade at 40 Wall St. in New York, State and Randolph in Chicago, Harmon Street on the strip in Las Vegas and a location in Puerto Rico. Walgreens plans to announce approximately a dozen additional flagship stores over the next 18 months. “When it comes to these stores, Mike Defazio — who is our primary store designer for flagship locations — is a great talent to have here at Walgreens,” Pugh said. “He and his team have made great progress, and we’re excited to hear what our customers think.”
“If you truly want to unlock the opportunity — content relevancy — it comes down to location,” Pugh said. That means knowing the local environment on a store-by-store basis. It’s the right offers in the right doors, Pugh said. It’s knowing the neighborhood — residential, office or tourist area. And it’s about knowing what roles pharmacy and wellness can play in those locations. “It’s just not stamping out the same thing,” Pugh said. “It’s taking the content of the entire box, not just my section of the front-end, and saying, ‘Where do we play and what is the best way to leverage that box to [realize] the maximum return?’”
Fresh is a good example of how to best match the right offers to the right door. “[In each market,] we’ve got a sandwich manufacturer, we’ve got a salad manufacturer, and those goods come from a closer proximity [and] go into a [third-party] centralized distribution center,” Pugh said. Stores carrying that merchandise get shipments regularly during the week. “That’s what that model requires. … It brings a lot of complexity,” he said. “How do you get it there? What do you sell? How much space do you give it? That’s the organizational structure changes that we’ve been making.”
What’s written between the lines, of course, is that if one category is folded in, that usually means another category is losing linear feet of selling space. That’s part and parcel to knowing where the puck is at all times.
The recently launched loyalty program, Balance Rewards, will help Walgreens further hone its mix with right-sized offerings in the appropriate settings. The loyalty program will give Walgreens a deeper look into who’s shopping their stores and why, help identify who is cross-shopping pharmacy and front end and help delineate possible nontraditional category synergies.
“Loyalty helps you get to a better place to make real estate decisions because you actually know who’s traveling from where,” Pugh said. “We have stores that have 70,000 cars a day that pass them, because they happen to be on a commuter route either going home or going to work. Those types of stores will have a much bigger trade area than a store tucked away in a community that is [only] 15,000 cars per day, but they’ve got 8,000 people within a small trade area,” he said. “[Those stores] don’t survive on car traffic, but then you have a much tighter net; you know 90% of your sales will be coming from a much closer proximity.”
The consumer insights culled from loyalty also is expected to help improve Walgreens’ merchandising of its store brands. Private brands play a big role in the merchandising mix, Pugh acknowledged, and for good reason — it helps the retailer better compete for what has become a more post-recession, value-conscious consumer. Keeping abreast of how a particular category plays in-store is a big part of Walgreens’ private-brand strategy. “We’ve had a huge emphasis on private brand, whether it be Nice! [or] Delish. You can see a lot of the new Studio 35 beauty that’s just coming off the line right now,” Pugh said. “We’re also seeing more customers reaching for our PetShoppe products, which are giving our private brand a boost.”
Moe Alkemade, VP retail brands and global sourcing, manages Walgreens’ private brand strategy, and he works with Pugh and Walgreens’ GMMs to develop forward-looking action plans for how private brand plays in each category. “How do we do more sales, grow topline, but at the same time grow profit dollars faster than sales dollars?” he asked. “You’ve got to do what’s right for the business and get the best return for the shareholders and offer the best value for the customers. Otherwise, that kind of renders you irrelevant to consumers.”
For noncore businesses like paper, which represents a convenience play, the strategy is to generate volume with the larger vendors in that space and position private brand as the value proposition rather than competing on a broader assortment against mass and supermarkets, which can move paper more efficiently — a learning from Customer Centric Retailing. In other categories? “Brands are more important, so you’ve got to be careful not to move too much. But there are some categories where you can really change the game,” Pugh said.
That’s what all of Walgreens’ merchandising efforts really boil down to — changing the g