Maximizing front-end, convenience gives chains holiday edge

Drug Store News,  Dec 16, 2002  by Molly Prior

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A drug store may not be the first retail outlet consumers think of when shopping for a 6-foot-tall Christmas tree or lighted garland wreath. Nevertheless, drug retailers, playing the all-important convenience card, have stepped up their seasonal offerings by sprucing up display windows and filling their aisles with everything from winter mittens to Christmas dinnerware.

While jazzing up the front-end with seasonal goods is certainly not a new phenomenon, the long term trend continues to pick up steam. And as drug stores increasingly load their front-end with these high-margin goods, they have begun to attract a changing customer base--one that expects to find cuticle cream, a digital camera and a wooden Nutcracker in one store.

Given the furious promotional climate this holiday, drug stores will likely lose to the discounters on price. Their strength, analysts say, will be convenience.

As in years past, drug stores are leveraging their convenience with deep holiday discounts to attract holiday shoppers. In fact, drug retailers, such as Walgreens, that had eased up on the promotional throttle ramped up their promotional efforts heading into the fourth quarter, said JP Morgan food and drug retailing analyst Stephen Chick.

Moreover, several drug retailers are using December circulars to position themselves more as general merchandisers. In fact, a page from CVS' first December circular could have passed for a toy catalogue with its selection of radio-controlled cars, electronic games, activity sets and dolls, such as a Holiday Barbie. Come 2003, CVS will increase its commitment to the high-margin category year-round through an agreement inked this fall with K*B Toys, naming the specialty retailer as the exclusive toy supplier for CVS' more than 4,000 locations.

CVS also used the holiday shopping season to roll out improvements to its ExtraCare loyalty card program. Going forward Extracare bucks, $1 earned for every $25 purchase, will now be printed directly on customer receipts, rather than sent via mail.

CVS' formidable competitor, Rite Aid is positioning itself to consumers as their "holiday headquarters" and has partnered with Warner Brothers to outfit its stores with Frosty the Snowman imagery on seasonal signage. Rite Aid's category management group has also developed exclusive Frosty the Snowman merchandise.

What's more, cashiers have been doling out free "24 Days of Christmas Savings Cards," giving shoppers additional savings on specially marked items throughout the store when they use their card. Rite Aid is promoting the event in its holiday circulars, in its stores with extensive signage, and on its Web site.

Walgreens is decked in a "It's a Wonderful Life" motif. The exclusive collection of holiday goods -- ranging from the collectible village that includes four illuminated porcelain building, priced at $19.99 each to 5inch vi age trees for $1.25.

Regional player Duane Reade is paying homage to its New York roots with a $9.99 "Christmas in New York" doormat, among its deep seasonal offerings.

Drug retailers across the board have loaded their front-ends with gift sets, featuring everything from fragrance to food, to grab impulse purchases from time-starved gift-givers.

The first week of December, Rite Aid's front-end, much like its contemporaries, showcased designer fragrance gift sets for men and women, such as White Diamonds and Giorgio for $29.99, $5 off the regular retail price. Rite Aid was offering its own control brand Spa Swami in gift sets, which regularly retail for $9.99, along with other brands such as Body & Earth and Sarah Michaels in a two for-$16 deal.

In addition to holiday decorations as quirky as the $79.99 Karaoke Santa that dances and wiggles to music, Eckerd stocked one of the hottest toys of the season, Chicken Dance Elmo, for a promotional price of $17.99--incidentally Wal-Mart was selling the toy for a "rollback" price of $14.84.

Despite all the bells and whistles of holiday merchandising in the drug channel, the pharmacy business still dwarfs seasonal sales and far said aces overall front-end sales. That said, the drug stores' increased focus on seasonal goods make the front-end more vulnerable to holiday sales trends. Drug retailers say the excitement and, more importantly, the foot traffic generated from seasonal goods outweighs much of the seasonal sales risk.

Lehman Brothers analyst Meredith Adler nodded to the drug chains beefed up holiday offerings. "The opportunity to drive the impulse buy is there if the drug retailers use it," said Adler. "Why shouldn't they leverage their convenience by offering seasonal," Adler asked. It's another opportunity to et one more item in the asked, she added.

Last year, drug stores actually benefited from shoppers staying out of the malls due to safety concerns following last fall's attacks, said Mike Niemira, a senior economist at Bank of Tokyo-Mitsubishi. With mall traffic still relatively weak, drug retailers may be able to expect similar spillover this holiday as well.