Retail

CVS’s New Groove

Retail these days seem to be all about embracing the new – even in some very old school businesses like pharmacy services.  Which is likely why retailer CVS is taking yet another step in embracing its new destiny as a central retail location for consumers looking to pursue a healthier lifestyle.

That journey kicked off three years ago when CVS officially pulled the plug on tobacco sales in its locations – on the argument that smoking is a health liability that is out-of-step with the rest of CVS’s bottom business line.  (It also likely didn’t hurt that years of successful smoking cessation education and legislation has also made selling tobacco a much less profitable enterprise in the U.S. as far fewer consumer smoke these days.)

And, as it turns out, neither is junk food – as the CVS executives have recently announced their intention to cut back on the junk food they are selling – in favor selling healthier options for their customers.

“The consumer said, ‘Wow you don’t sell tobacco, why don’t you have healthier food?” Helena Foulkes, president of CVS Pharmacy noted. “The consumer is always ahead of us, pushing on that path to really being a healthcare company.”

The Redesign

Less-than-healthy food will not exactly be verboten at CVS going forward: a consumer on the hunt for a soda, Snickers or bag of chips will still be able to find those goods.  Still, those goods will no longer be sitting next to the point of sale, tempting consumers with impulse purchases of something sweet or salty.

Instead, those unhealthy impulse buy spaces will be filled with healthier options (or perhaps beauty supplies) in about half of CVS’s retail locations.

That change will come as CVS redesigns hundreds of its 8,000 locations, with an eye towards a much bigger focus on health and wellness products like skin care regimens and nutrition bars. Seasonal items and general merchandise, on the other hand, are being phased out, largely because they aren’t selling.  CVS has seen years of declines in merchandise sales, even as consumer have come in to pick up prescriptions in increasing numbers.

That means CVS is rethinking its stock – and re-aligning its merchandise to be more in like with its core purpose.  It will be expanding its in-house Gold Emblem Abound brand to offer additional healthy food options. Overall, the retail pharmacy chain says it plans to increase healthy food selection by 50 percent at stores getting an upgrade.

With those expanded food offerings, there will also be new aisles offering additional new health and beauty products as well.

Some 2,000 CVS locations already have a “trend wall” feature display that showcases new launches, making them stand out more within the store, emphasizing CVS’ exclusive brands.

The changes comes – Foulkes notes – as CVS is realizing that it is better to be the right thing for the right customers – as opposed to trying to be everything to everyone.

“It emboldened our merchants to say we’re not just going to have a lot of categories and be a convenience store, we’re going to stand for something,” says Foulkes. “The marketplace will continue to reward those who stand for something. It’s a whole reimagined store design.”

Under Pressure

The reimagined CVS may be coming at a good time, as CVS pharmacies are under pressure to increase foot traffic as the company has seen the competition for prescriptions intensify – while non-pharmacy sales at stores open at least a year fell 2.9 percent in the fourth quarter.

Those sales represent about 11 percent of the company’s revenue, according to UBS.

“They’re looking to do this because they want to remain relevant with their customers and be viewed as a local destination for healthy products and items and help fulfill their customers’ health needs,” said CFRA Research analyst Joe Agnese, who tracks CVS. “It helps them keep up with what everybody else is doing.”

The redesign project is underway at present – but is something of a work in progress.  The company anticipates rollout will be completed by the end of 2018.

As for the costs of such a big reset?

CVS isn’t disclosing any official figures – though Foulkes notes it falls within previous capital spending provisions.

 

 

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