A new look for Walgreens

ORLANDO, Fla. Walgreens’ pursuit of growth in recent years has caused the company to open in-store clinics, create a new offering of health services and even pursue acquisitions. Now, the company best known for operating 15,000 square foot stores located at the intersection of Main and Main also is bringing new thinking to store designs and prototype development.

“One size does not fit all,” Don Whetstone, senior director of merchandising strategy and development said last week at the Retailing Smarter conference sponsored by the University of Florida’s David F. Miller Center for Retailing Education and Research. Whetstone is a 27-year Walgreens veteran who now leads a newly created organization responsible for the development of an expanded portfolio of store formats and strategies to better meet the needs of key markets and trading areas.

Walgreens will continue to rely on the familiar 15,000 square foot corner drug store with approximately 26,000 products across 150 departments located on a two acre parcel, but work is underway on the development of alternative formats and new store designs. As in other segments of the retail industry, smaller formats are seen playing an important role in Walgreens future expansion, especially as the company pursues growth in high density markets with limited real estate opportunities.

“A smaller format will facilitate our continued expansion in markets in the Northeast and California,” Whetstone said. “We find ourselves having to become more flexible to shoehorn into some of these areas.”

He offered as an example a Walgreens store on Castro Street in San Francisco that is one third the size of the company’s average store but it produces twice the annual sales. “We have to take that concept and learn from it and be able to take it places like Boston,” Whetstone said.

In addition to smaller formats in urban areas, Walgreens also has developed a store prototype designed to operate profitably in small markets that offer top line sale potential below the typical $8 million the average new Walgreens store generates during its first year of operation. According to Whetstone, the company has created a store design that functions with 17 percent less inventory, 22 percent less labor, 24 percent less facility costs and half the advertising pages of a typical store without compromising the customer experience.

In addition to new store designs and smaller formats, the coming years could bring sweeping changes to the appearance of Walgreens conventional stores. “Even our prototype needs a facelift every now and then and we are working on that now,” Whetstone said.

Walgreens converted a warehouse three miles away from its Deerfield, Il headquarters into what Whetstone called the Innovation Center. It is a place where merchants and store designers are able to experiment with fixtures, signing, presentation and product adjacencies.

The result was the development of a new design that is now in place at four Chicago area stores and two other locations elsewhere. The design features a softer, more feminine color palette, lower fixture heights, a crisp clinical look in the pharmacy department and a racetrack layout that Whetstone concedes will probably not be used going forward.

Walgreens is still assessing customer feedback and Whetstone shared one telling comment from a woman who visited the new cosmetics department and said, “it looks like it’s been designed by a woman instead of a bunch of old guys.”

Walgreens has abundant opportunities ahead of it to change consumer perceptions of its store designs. The company currently operates 6,727 locations and one third of those stores are less than five years old. Through the first three quarters of its fiscal year, Walgreens has opened 420 stores and is on track to achieve its full year goal of opening 550 stores.

“We open a store about every 17 hours,” Whetstone said.

Long-term term, plans call for 7,000 stores by 2010. Looking ahead to 2012, the company has revised its terminology somewhat to talk about having 10,000 points of care, inferring that much future growth with come from sources other than retail stores.