Reasons for optimism in the new year

Drug Store News,  Dec 16, 2002  by Rob Eder

• E-mail
• Print
• Link

It's that time of the year again. That time between Thanksgiving and New Year's, when--if you can just stop eating for a second--you find yourself sifting through the events of the past year and wondering what next year will be like. If it has been a good year, you count your blessings and hope for more of the same. If it hasn't been a good year, you hope that maybe this year will be better than the last. And sometimes there are some pretty sound reasons to believe it just might be.

Attending NACDS' traditional holiday press conference here in New York City Dec. 5, it was one of those moments.

There was a Dickens-like quality to it, perhaps because it's the holiday season and the last couple of years have been particularly difficult on a lot of different levels. The entire country could use a Tiny Tim moment--for Ebenezer to just show up unexpectedly and give the economy a big, fat goose.

The world of chain pharmacy is certainly no exception. To be sure, this industry is going to face its share of challenges in 2003. Still, you get the sense, through it all, there was reason to be at least a little optimistic about next year.

There is the economy.

The chain pharmacy business is somewhat more insulated than other channels--more so than, say, department stores or high-ticket specialty retailers that tend to sell the things people don't really need as much when money gets tight. People on prescription drug regimens are still going to need their meds, people are still going to need to brush their teeth, bathe and groom themselves (well, most people, I hope).

And that may be true. According to data from Information Resources Inc., sales through the core front-end categories in drug stores climbed 6.3 percent during the 52 weeks ending Oct. 6, reaching some $32 billion--a $2 billion lift. But drug retailers had to a en their promotions a lot more than any of them certainly could have wanted in order to drive those sales, and that has cut into gross margins more than any of them have liked. And that, unfortunately, doesn't seem to be ending.

But there have been some signals--most of them mixed, unfortunately--that things could be getting at least a little better. Historical y, low home lending rates have led a lot of consumers to refinance, creating a little extra cash that has helped pro p up consumer spending. When Black Friday came in a little better than expected, financial markets rallied somewhat, with the Dow Jones flirting once again with the 9,000-mark for the first time since August.

And while new jobless claims had reached a 22-month low by the end of November, the unemployment rate was up to 6 percent a week later--the highest in nine years.

The bad news is that people aren't exactly going to spend like crazy this Christmas. The good news is that drug chains have positioned themselves well to compete in this type of environment, running deeper in toys, games and giftable seasonal items and promoting much of this merchandise at pretty significant discounts. If C VS could have done its deal with K * B in time for Christmas, it might have hit the jackpot this season.

As I write this column, the White House has just accepted the resignation of Treasury secretary Paul O'Neill and economic advisor Larry Lindsey. The move at least suggests that George W. Bush, unlike his father, understands what it takes to turn around this stupid economy. Whether or not a recovery is completed in 2003 is unclear, but with the presidency perhaps riding on that single issue there is a good chance it might. By 2004, it probably would be too late to make a difference with voters. As cynical as that might sound, that is at least some reason for optimism: It could be now or never for Bush.

Moving to issues more central to chain pharmacy, you also get a sense that although drug stores face significant pressure in 2003, with more than 40 states looking at ways to reduce Medicaid costs, NACDS will find a way to work with lawmakers to find alternatives to whacking away at pharmacy reimbursements. Even as the situation in Delaware begins to unfold, recent experience in Massachusetts suggests that state government isn't likely to ask pharmacy to operate at a loss. With NACDS, not to mention Happy Harry's president and chief executive Alan Levin, who knows his way around the political process about as well as anyone in this industry, you have to figure they will reach a compromise in Delaware.

And then there is the matter of a national prescription drug benefit for low-income seniors. Two things became clear last year. First, the Bush plan won't fly. Second, the industry has proved it can deliver a market-based solution in the Together Rx program, which has reached more than 1 million people.

NACDS president Craig Fuller expressed optimism in the industry's ability to work with Congress on reaching a compromise that chain pharmacy can live with--one that doesn't artificially incentivize patients to move to mail order, one that acknowledges the value a living, breathing pharmacist adds to the equation. The climate is right among the group that recently came to Washington, Fuller noted, "there is an alignment of interests around coming up with a market-based solution."