Drug chains eye AmEx card sales … as more shoppers are leaving home with it

Drug Store News,  Feb 5, 1990  by Christine Bizzarro

• E-mail
• Print
• Link

Drug chains eye AmEx card sales

. . . as more shoppers are leaving home with it

"Don't leave home without it."

Given today's environment, that phrase could mean anything from a condom to an umbrella to, of course, a credit or charge card.

Drug chains, presuming that more consumers are packing a particular green one of the latter, are now accepting American Express in their stores--even after years of steady business with less costly VISA, MasterCard and Discover transactions.

Willing to bet that this payment option translates into goodwill and extra business, such drug chains as CVS, K&B, Peoples, Thrift, Big B and Genovese accept AmEx. Newer converts in recent months: Eckerd, Pay Less NW, and Hook-SupeRx, including Brooks.

The vast majority of drug chains long ago began accepting VISA and MasterCard, and Discover.

What's going on here? Drug chains who otherwise look to shave every tenth of a point from operations expenses are taking on AmEx. Retailers told Drug Store News that AmEx assesses about double the rate of bank credit cards on their customers' purchases. None would disclose their specific arrangement, but Forbes magazine reported in 1988 that AmEx retailer fees averaged 3.29 percent, compared with VISA's 1.96 percent.

Nevertheless, some drug retailers are hoping to cut themselves a bigger piece of growing credit and charge card sales through AmEx.

Credit card use grows

Credit cards remain popular despite an overall slowdown in consumer spending. Spencer Nilson, publisher of The Nilson Report, tracker of the credit card industry, said: "Credit card spending increased from $200.5 billion in 1980 to $413.8 billion in 1988." He said spending could reach $574.5 billion in 1995.

Revco, for one, is negotiating with American Express. Spokesperson Kathy Obert said they still haven't decided whether to roll out chainwide initially, or introduce AmEx in select markets.

At Eckerd, which already accepts VISA And MasterCard, vp-public affairs Mike Zagorac said, "We now offer more convenience by offering American Express as an additional method of payment."

Pay Less NW also recently decided to accept AmEx. President Tim McAlear said, "It's a good deal for our customers and it's a good deal for us." All 282 Pay Less stores began taking the card in time for this past holiday shopping season. It already accepts VISA, MasterCard and Discover chainwide.

Peoples, Genovese and K&B have honored AmEx for years. Peoples decided to accept AmEx four years ago because it is "well-known," said spokesperson Redon Forrest, who noted that credit and charge card sales account for 10 percent of the chain's volume.

James LeBlanc, president and chief operations officer at K&B, said, "We've always been big in the credit card business--we accept VISA, MasterCard, Discover and our own card--and we've done quite well with American Express, without hurting our other credit business," he said.

Enough is enough

Genovese has accepted AmEx for six years, but vp-marketing Don Gross wishes that would change. "We don't object to plastic," he said, "but American Express charges twice the amount of the other three companies," which the chain also accepts. Gross said that more than 10 percent of Genovese's total sales are done on credit, a number that is increasing.

"We've tried to discourage use of American Express by our customers, and have asked the clerks to ask our customers to take out another credit card," Gross said. "But the truth is, the largest percentage of credit card purchases at Genovese are made on the AmEx card. We have to spend that extra two or three percent to accept American Express, because that's what our customers use most."

Walgreens accepts American Express "on a store-by-store, selective basis," said Maryellen Thielen, spokesperson. The chain also accepts MasterCard, VISA, and Discover chainwide.

Deep discounters doing it too

Traditional drug chains might be better able to afford this service. But Drug Emporium rolled out VISA, MasterCard and Discover acceptance last year. Deep discounters are, of course, in a big-volume game and stand to gain a great deal, even with their low-margin structure.

"Our average credit card transaction is over two times higher than our average sale by other means of payment," said Rusty Cowart, vp-general manager, of Drug Emporium's franchise stores in Orlando, Fla. His were the first Drug Emporiums in the nation to accept credit cards back in 1987.

"This additional volume more than offsets the fee, so we don't have to increase our gross margins," which he contended haven't been raised to compensate for the credit card transaction fee.

Credit card sales in his Orlando Drug Emporiums are greater than 10 percent of total store sales. "Credit cards are a major convenience for a lot of people, especially in our market. The typical tourist here tries to conserve as much cash as he can." He added that "credit cards have been a major help in the pharmacy with high-ticket prescription items."