Refurbishment-led recovery?

It has been an interesting week in retailing ¬- interesting in its normalcy, with no doom, gloom or bearish headlines, just good business strategy playing out.

In Australia, CHOICE crossed swords with ANRA, Coles sold off some non-core stores to FoodWorks, Woolworths took the lead in the fast-growing wholefoods and organics race in Australia and ABS retail stats saw sales 1% higher, double that forecasted by our still bearish analysts. All good signs that we’re through the worst and it’s business as usual in retail land.

But let’s look at the US to see how two giants continue to lead their respective sectors by investment to deliver greater shopper experience.

In the US, retail giant Walmart told the markets that it would no longer be providing a monthly update. An interesting move, given the power of the analysts on Wall Street to shape investor perception on what stocks to buy, hold or sell.

However Walmart’s CEO Mike Duke was merely reflecting the view of his board that it didn’t feel Walmart’s retail trading position was at all uncertain or warranted a blow-by-blow description of its calm, consistent growth. A picture that hasn’t changed or been undermined by the GFC. Walmart will now report back to the markets every 90 days to keep everybody informed of just how well it is performing. And it’s performing very well indeed.

Over at pharmacy giant chain Walgreens (no relation to Walmart by the way), CEO Gregory Wasson reported on the impact of its trading position, gave some interesting anecdotes around shopper behaviour and updated on Walgreens’ significant store refurbishment program.

One of Wasson’s leading indicator’s observations from store level was that the shopper has been using credit cards less frequently, in line with the central bank’s lagging indicator around personal credit, and shopping is now more concentrated closer to paydays, when shoppers have more cash.

To remind you, Walgreens undertook a major store refurbishment plan aimed at improving shopper experience within their stores. To do this, it diverted funds by slowing store openings. Importantly, while Walgreens is a “destination” pharmacy store, shoppers plan their shopping trip around the absolute and time-bound need to pick up prescriptions. Category creep has allowed Walgreens to provide shoppers with the convenience of purchasing other “needs” while picking up their prescriptions.

These needs now take Walgreens head-to-head with Walmart and other major supermarkets and convenience stores. It also takes Walgreens up against off-licenses as it is able to sell beer and wine too.

This change doesn’t come cheap, with US$130 million spent so far. Walgreens has had to write-down the value of products and brands it has taken off its shelves to simplify its offer to shoppers and improve the range of new categories.

On top of this, the actual refurbishments are costing around US$55,000. Not surprisingly, the global refurbishment trend we have seen in Coles, Woolworths, Priceline, Walmart and Tesco is seen here too, with lower shelves and a smaller selection of items improving sightlines, creating an airy feel and simplifying shopping.

Walgreens is also lifting its game by growing its private label range and sales. This mirrors what’s happening worldwide as retailer developed and marketed private label goods continues to grow.

So is it working? Well, sales are up around 8%, even if the profit performance is lagging behind its major competitor, CVS Pharmacy. However, CVS hasn’t undertaken any store refurbishments and Walgreens’ growth trend is reflecting happy shoppers coming into the refurbished Walgreen stores, liking the experience and coming back for more.

Prediction: CVS will see a drop in shopper satisfaction, sales and profit until it chases Walgreens’ lead.

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.

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