Pharmacy is the star of new Target ad effort

9/14/2009

MINNEAPOLIS —Talk about pressure. Pharmacy is playing an unfamiliar role in Target’s holiday plans this year, as the retailer is soon expected to begin airing its first ever national advertising campaign to promote pharmacy.

A launch date for the television campaign hasn’t been disclosed, and it seems a little surprising that, prior to now, Target never promoted pharmacy on a national level. And that’s exactly the point the retailer’s EVP merchandising, Kathy Tesija, made during the company’s second-quarter conference call. The TV spots, Tesija said, are part of “an unprecedented integrated marketing campaign to drive even greater awareness for our pharmacy services and convert more Target guests into Target pharmacy guests.”

Target is a major pharmacy retailer, operating more than 1,500 pharmacies in its 1,719 stores nationwide. “These efforts will help contribute to storewide sales growth, as loyal pharmacy guests are some of our best guests in terms of frequency and basket size,” Tesija said.

The challenge for Target is to promote greater awareness of its pharmacy offering and convince a higher percentage of customers who are already shopping its stores for other merchandise to begin having their prescriptions filled there, too. If the ad campaign is successful in generating increased usage among existing customers, in addition to attracting new ones, the anticipated boost in customer traffic and average transaction sizes couldn’t come at a better time.

The company has seen its customer counts and average transaction sizes dwindle this year as shoppers migrated to other retailers they perceived to offer better values, while those who stayed true to Target curtailed their purchases of margin-friendly apparel and home goods. The result was flat or declining same-store sales that have been common at Target for the past 18 months, and to counter the trend, the company has aggressively promoted traffic-generating categories—such as food and consumables, and now pharmacy—while making bold new statements about its low prices in ads and in store.

Such measures are slow to affect the bottom line, though, as Target is essentially attempting to partially unwind consumers’ perception of its pricing, while retaining favorable attributes related to trend-right merchandise presented in well-maintained stores and a pleasant shopping environment.

An effective pharmacy campaign could be an important factor in stopping or reversing Target’s declining sales trends. Sales decreased 2.7% in the second quarter to $14.6 billion from $15 billion, but same-store sales declined 6.2%. Extensive cost cutting enabled Target to produce earnings per share of 79 cents, surpassing analysts’ estimates of 66 cents, but net income of $594 million was still well below the prior year’s $634 million.

“Second-quarter earnings were stronger than expected owing to very strong operating margin in our retail segment and credit card segment performance in line with expectations,” said Gregg Steinhafel, chairman, president and CEO. “Looking forward to the second half of the year, we are focused on initiatives to drive incremental traffic and sales in our stores.” Pharmacy is such an initiative.

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