Analyst: Retail focus key to keeping Walgreens competitive
Walgreens kicks off its new fiscal with a mixed set of results. Overall sales are strong, aided by the integration of 375 Rite Aid stores and a robust performance from the U.S. retail pharmacy division. This growth was sufficient to make up for the slightly disappointing numbers from the international group, where same-store sales fell by 0.7%. Meanwhile, impairments in investments and an equity loss from earnings in AmerisourceBergen helped pushed down net income by 23%.
Just like the results, our views on Walgreens are also mixed. On the positive side, we believe that the core business is currently healthy and that initiatives like AllianceRx Walgreens Prime are helping the company to drive prescription volumes. We are also optimistic about the sales line, mainly because of the uplifts which will come from the integration of Rite Aid stores. Admittedly this benefit will accrue gradually as the full amalgamation of Rite Aid assets is not expected to complete until the end of fiscal 2020.
On the negative side, we are concerned about the competitive outlook following the announcement of the merger between CVS Health and Aetna. In our view, this has the potential to disrupt the industry and gives CVS a major advantage in the provision of healthcare, health advice, and health products. Ultimately, this increases the long-term risk of Walgreens losing market share across a number of health and prescription categories.
Fortunately, Walgreens has time to address this emerging competitive threat. However, its response needs to be far more comprehensive than merely relying on adding Rite Aid stores to generate growth. A much deeper review of how to expand services, improve loyalty, and increase customer share of wallet is required.
A good starting place is the retail side of the business. While this is an area of relative strength for Walgreens compared to CVS, the numbers remain disappointing. This quarter, front-of-store retail sales decreased by 2.8%, and comparable equivalents fell by 0.9%. Admittedly, behind these headlines, Walgreens is making some progress in beauty and health, but not by nearly enough to offset declines in categories like consumables and general merchandise.
We believe that the company has the potential to do a great deal better in retail, and as a first step should find ways of competing more effectively with high-growth beauty retailers like Ulta and Sephora. With the firepower of its own brands, like No. 7, behind it, Walgreens is in a unique position to create a compelling proposition. We do recognize the efforts made to date, but also think the execution in stores is somewhat lackluster. Away from beauty, reconfiguring the general merchandise offer is also necessary.
As much as retail is a start-point, it is not a complete defensive solution. Walgreens also needs to assess how it can deliver a better experience on the health side of the business. CVS and Aetna have talked about creating an Apple-style Genius Bar in stores – this is the type of thing with which we believe Walgreens should experiment.
Ultimately, Walgreens is not a bad business and, at present, we still see it as a much better retailer than CVS. However, this position has partly been achieved by default. That is now changing, and the market is set to evolve rapidly. Against this backdrop, Walgreens needs to be more innovative, more experimental, more customer-centric, and much faster in driving change.
Macy’s pushes forward with closures, job cuts
A “solid” holiday shopping season won’t offset looming job cuts and store closings at Macy’s
The department store giant said its same-store sales increased 1.0% in the months of November and December 2017 combined, setting the stage for a positive fourth quarter. Active apparel, shoes, dresses, coats, fine jewelry, men’s tailored clothing, children's and home were all top performers. Beauty was also a highlight and showed a marked improvement in trend, with particular strength in fragrance, prestige skincare and cosmetic gifting, the company said.
“We saw improved sales trends in our stores and continued to see double-digit growth on our digital platforms,” said Jeff Gennette, Macy’s CEO. “ We intend to close the fourth quarter in a good position and head into 2018 with momentum.”
The company announced the closing of 11 Macy’s stores, four of which were previously disclosed. With these closures, the retailer will have completed 81 of the approximately 100 planned store shutterings it announced back in August. It intends to close approximately 19 additional locations as leases or operating covenants expire or sale transactions are completed. Including the stores announced today, Macy’s has closed 124 stores since 2015. (See end of story for list of stores scheduled to close in early 2018.)
Macy’s also said it is making staffing adjustments across the stores organization with reductions in some stores and increases in others, and is further streamlining in some non-store functions. According to a report by USA Today, Macy’s will eliminate a net total of about 5,000 job positions, including the closures and reductions at remaining locations.
The company expects annual expense savings of $300 million from its actions beginning in fiscal-year 2018, which it intends to reinvest in the business. It also anticipates one-time charges of approximately $160 million, or approximately 33 cents per share, (of which approximately $115 million is expected to be cash) to be booked in the fourth quarter of 2017 for restructuring activities, asset impairment, store closings and other costs.
Macy’s chief executive said the company’s primary focus in 2017 was to continue the growth of digital and mobile, stabilize its store business and set the foundation for future growth.
“We’ve made good progress on each, including encouraging trend improvements in our brick & mortar business,” Gennette said. “A healthy store base combined with robust digital capabilities is Macy’s recipe for success. Looking ahead to 2018, we are focused on continuous improvement and will take the necessary steps to move faster, execute more effectively and allocate resources to invest in growth.”
The following Macy’s stores will be closing in early 2018. In most cases, clearance sales will begin on January 8, 2018, and run for approximately 8 to 12 weeks.
- Laguna Hills Mall, Laguna Hills, CA *
- Westside Pavilion, Los Angeles, CA*
- Novato (Furniture), Novato, CA
- Stonestown Galleria, San Francisco, CA *
- The Oaks, Gainesville, FL
- Miami (Downtown), Miami, FL
- Magic Valley Mall, Twin Falls, ID*
- Honey Creek Mall, Terre Haute, IN
- Birchwood Mall, Fort Gratiot Township, MI
- Fountain Place, Cincinnati, OH
- Burlington Town Center, Burlington, VT
*Previously disclosed closure
Pet owners show preference in purchasing from brick-and-mortar stores
Although there has been an uptick in e-commerce when it comes to pet owners, many prefer to purchase products such as food for their four-legged family members from brick-and-mortar locations like PetSmart and Petco.
This information comes from the latest market research report from Packaged Facts titled, Pet Food in the U.S., 13th Edition. The report takes a look at the comprehensive overview of the market size, projections, cross-market-trends and acquisitions. The report also studied the wide range of products available to consumers which contain special claims, exotic proteins and grains aimed towards winning over pet owners.
Pet Food in the U.S., 13th Edition states that about 88% of dog owners and 93% of cat owners admit to purchasing food for their pets from a store within the last 12 months. One demographic most comfortable with non-traditional purchasing options are millennials. This group was more likely than any other to buy items through a website or app for home delivery or in-store pickup.
Packaged Facts also notes that in 2017, pet retailers strengthened online offerings without ignoring their brick-and-mortar locations. PetSmart added 63 locations in its first three quarters and opened its 1,600th store. Petco operates more than 1,500 stores and Pet Supplies Plus has 400 locations in the nation.