Fred’s: On the cusp of a transformation
If Fred’s CEO Mike Bloom has his way, the Fred’s Pharmacy of today won’t be the Fred’s of tomorrow. The retailer — currently operator of 601 discount general merchandise stores with 350 store and pharmacy locations — announced in December 2016 that it will acquire a minimum of 865 divested Rite Aid stores should the U.S. Federal Trade Commission approve the proposed Walgreens Boots Alliance-Rite Aid merger. (The transaction had not been approved as of press time.) If approved, Fred’s would become the third-largest drug store retailer.
Bloom outlined four reasons why acquiring divested Rite Aid stores would be a strategic win for the company. “First, we are a strong strategic fit. Retail pharmacy is our core competency. This deal accelerates our growth plan and builds on existing scale and infrastructure. Second, we have a very experienced leadership team that has a long history of successful pharmacy mergers and acquisitions. The leadership team is made up of many former executives from Walgreens and CVS. Third, this deal creates a true competitor with scale, and there is no meaningful overlap in the divested store markets. This deal truly maintains and enhances competition in all markets where Fred’s Pharmacy is or will be competing and provides us with the opportunity to match our vision for growth and further scale in all markets. Last, this deal is good for consumers and payers. Payers and their pharmacy networks will benefit from the presence of a growth-oriented and aggressive competitor in the divestiture markets.”
Executing the plan
Fred’s top goal has been transforming itself from a discount retailer with a pharmacy into a bona fide retail healthcare/pharmacy organization. And according to Bloom, that plan remains on target even if quite a bit of work remains.
“We know we have work ahead of us. Fred’s has lacked investment and process improvement for a very long time. That said, we are pleased with the progress we are making against our strategic plan and are focused on doing what needs to be done to have our financial results match our operational successes,” he said.
Looking ahead, Bloom explained that the company is focused on pharmacy growth, improving trends in front store, strong cash flow and reducing inventory and expenses throughout the business. “Fred’s Pharmacy is on the right path, and we will continue to execute our healthcare strategy and drive value for our team members, customers and shareholders. We are now consistently seeing favorable sequential growth in retail pharmacy, adjusted script comps, along with sequential progress in sales trends in our specialty pharmacy business, continuing our quarter-over-quarter growth trend. We expect this sequential improvement to continue throughout 2017.”
Fred’s specialty pharmacy efforts — which the company enhanced in 2015 with the acquisition of EntrustRx — have begun to pay off. “Specialty sales grew double digits in the second half of 2016 versus the first half of 2016, demonstrating the momentum in our strategic shift to focus on health care,” said Bloom. “Looking ahead to 2017, we are confident it will be a year of sales growth through the expansion of therapies, new additions to the sales force, and the expansion into 340B programs for specialty pharmacy.”
No matter how many stores Fred’s operates in the future, beauty could be an avenue for growth in the front store. Bloom’s resume includes a stint as the category manager for cosmetics and fragrances at CVS, and the Fred’s chief executive also was a main force in developing CVS’ former Beauty360 concept stores.
“With the growth of Ulta and Sephora that are just doing a great job in this segment, it confirms in my mind that beauty is an extremely important business in brick-and-mortar stores,” Bloom said. “Clearly, beauty is a growth opportunity at Fred’s.” To that end, Fred’s recently added former CVS DMM for beauty and personal care Mary Lou Gardner to the company’s leadership team as chief merchandising and marketing officer — another signal that beauty could be a key part of Fred’s future.