Walgreens Sharpening Focus On Private Label
Store closures are in the offing at Walgreens, but at the locations that will remain open private label products will have a greater presence on store shelves.
During the drug store chain’s third quarter earnings conference call, Walgreens CEO Tim Wentworth said the retailer will be taking a series of actions and making investments to enhance the experience for its customers. As part of this effort, the company is reevaluating its assortment to ensure the relevancy of the products it carries, leveraging select partners, and its own brands.
“This means we will work with fewer partners who are helping us win,” Wentworth said during the conference call. “In the last quarter alone, we’ve removed eight national brands and redeployed those SKUs toward own brands and preferred partners within health and wellness categories.”
Few details were offered on which categories will be the focus for Walgreens going forward as it pulls back on nationally branded products and focuses on its private label assortment.
Recently, private label products from Walgreens have been in the headlines. In May, the retailer launched its own brand Naloxone HCI Nasal Spray that is used to reverse an overdose of opioids. Priced at $34.99, the Walgreens-branded spray is priced at $10 less than the Narcan Naloxone HCI Nasal Spray also available on Walgreens.com.
Additionally, in February the drug store chain’s Nice! Brand Gummy Mango peelable candy found itself in the middle of a social media craze. TikTok user “trinhdoesthings” highlighted a video that featured the candy. As a result, the item's sales increased seven times more than average.
How the retailer progresses with its private label expansion will be closely watched in the coming months.
Also, the retail industry will be keeping an eye on how many of Walgreens approximately 8,700 stores will be shuttered. Wentworth noted the shift in demographics and customer preferences have shifted, leading the company to evaluate its footprint.
“In the last quarter alone, we’ve removed eight national brands and redeployed those SKU’s toward own brands and preferred partners within health and wellness categories.”
— Tim Wentworth, Walgreens
Currently, 75% of our U.S. stores contribute roughly 100% of segment (adjusted operating income),” he said. “For the remaining 25% of the stores in our network, which are not currently contributing to our long-term strategy, changes are imminent.”
While Walgreens officials did not offer a specific figure regarding the number of possible store closures, Manmohan Mahajan, global chief financial officer, said the drug store chain is going through a “detailed analysis” store by store to see how each location’s performance can be improved to bring the struggling stores back into the company’s portfolio.
Closing stores is not an uncommon endeavor for Walgreens, as the retailer has shut more than 2,000 stores over the past 10 years.
To evaluate those locations that are struggling, Wentworth said the company is implementing a multifactor store footprint optimization program that is expected to include the closure of a significant amount of underperforming stores over the next three years.
For the remaining portion of the struggling stores that are not closed, Walgreens will take action to return these locations to profitability and deliver an improved customer experience.
“We will contemplate additional closures if performance does not improve, which includes external factors such as reimbursement rates,” he said. “While it is not an easy decision to close a store, we will work to minimize customer disruptions and importantly, as we have done in the past, we intend to redeploy the vast majority of the workforce in those stores that we close.
News of possible store closures at Walgreens came as the company reported its U.S. Retail Pharmacy segment had sales of $28.5 billion in the third quarter, an increase of 2.3% from the comparable quarter the previous year. Comparable sales increased 3.5%.
Pharmacy sales increased 4.4% and comparable pharmacy sales increased 5.7% compared to the year-ago quarter. Retail sales were down 4% and comparable retail sales decreased 2.3%. Retail margin was negatively affected by increased promotional activity and higher shrink levels.
