Walgreens continues overhaul with purchasing, store changes

DEERFIELD, Ill. When Walgreens embarked on a sweeping revitalization campaign last October, the drug store giant promised to overhaul and clean up its merchandise mix, dramatically upgrade its front-store appeal, cut its bloated operating structure and fully integrate its core strengths in pharmacy, health and wellness. Now, those changes are beginning to work their way through Walgreens’ purchasing department and the stores themselves.

On May 6, the company parted ways with three high-profile veterans of its purchasing department — underscoring just how serious it is about shaking up and revitalizing its product mix — and revealed it was on the hunt for fresh thinking in front-store merchandising. Almost simultaneously, Walgreens announced the unveiling of some 35 new or redesigned drug stores by early summer. By this fall, some 400 of the company’s more than 6,700 drug stores will sport the new, slimmed-down prototype, SVP and CFO Wade Miquelon told analysts.

Those departing Walgreens were Bill Hubbs, divisional VP and general merchandise manager for seasonal and sundry; Arnie Silver, DVP and GMM consumables; and Kathy Steirly, DVP and GMM beauty. Their exits are not part of Walgreens’ ambitious plan to cut $1 billion in annual operating costs, spokeswoman Tiffani Washington told Drug Store News, adding that the chain is looking “both internally and externally” for their replacements.

In the meantime, the consumables, beauty and seasonal categories will be overseen by VP purchasing Dave Van Howe and DVP and GMM Robert Tompkins, “who will help oversee the purchasing divisions until replacements are named,” said Walgreens president and CEO Greg Wasson. Wasson praised the three merchants in an internal memo to managers announcing the changes. “These three have all worked very hard to make Walgreens successful, and we appreciate their years of service,” he noted.

Walgreens also hired Rachel Bishop as DVP and GMM strategic planning and analysis. Bishop last served as an associate principal at McKinsey & Co. in Chicago, and “has already started working closely with Chong Bang on the Customer Centric Retailing initiative,” the company announced. Bang, a DVP, was tapped to head that initiative as part of Walgreens’ effort to overhaul its product presentation and build additional customer demand. 

The abrupt exit of three key category managers signals more changes ahead in the look and feel of the Walgreens drug store. As the sweeping Customer Centric Retailing project works its way through every nonpharmacy department in the store, customers will see new approaches in everything from beauty and wellness products, to toothpaste, to batteries. Wasson and others say the changes will yield a product mix more trimmed down and condensed, and geared more to the “affordable essentials” Walgreens now says it must do a better job of offering the nation’s consumers in a time of economic belt-tightening.

“It’s everything from reviewing our merchandise selection and our department adjacencies, our profile, our look and feel and so forth within the stores,” Wasson explained in an earlier interview. “I think the fortunate thing about the industry we’re in is that we sell a lot of what people need,” he added. “So we’re focusing on all we can do to meet the new consumer needs and make sure we’re relevant in their everyday lives, by offering high-value … products and services.”

Walgreens merchandisers and category managers are going through every department within the store and have “spent the last seven or eight months really understanding what the shopper wants,” Miquelon said. The first results of that effort are being seen in the 35 or so test stores Walgreens is debuting over the next few weeks. The new format features a pared-back product selection — with SKUs down by 15% to 20%, according to Miquelon — and gondola heights lowered to improve department visibility and sightlines.

Walgreens is scrapping many slow-moving and redundant product facings and offering more “affordable essentials,” such as detergent, mouthwash, skin care products, shampoo and batteries. The company also is emphasizing more promotional items in both its product selection and advertising, and grouping those products thematically to make it easier for the 5.3 million customers who shop its stores each day to find what they’re looking for.

The goal, say company leaders, is to create an easier and more exciting shopping experience for customers and boost average shopping baskets by at least one more item. The result could be billions of dollars in additional revenues, more productive and profitable stores and additional customer visits, as the company works to restore its sales and profit momentum in a recessionary economy.

One Wall Street analyst who has toured the new Walgreens experimental format, Mark Miller of William Blair & Co. Equity Research, called the early result “a good first effort,” adding, “management has improved the aesthetics in its new store format by reducing the SKU count … and keeping the merchandise presentation below its standard 5-ft., 6-in. risers.”