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Walgreens individualizes store assortments

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DEERFIELD, Ill. — Walgreens Boots Alliance is working to reenergize the front end at its nearly 9,000 retail pharmacies in the United States and Puerto Rico as it expeditiously responds to consumers’ changing needs and bolsters its competitiveness.

The process of revitalizing the front end began with a reassessment of the merchandise mix and an enhancement of the way products are presented in-store and online. Following the analysis, the company optimized its retail inventory, addressing slow-moving product categories by paring its offering.

“An extreme focus area for us is understanding where and how to simplify the assortment, and that changes by store,” explains Tracey Brown, executive vice president at WBA and president of Walgreens Retail and chief customer officer. “Data tells us where the top stores for a particular SKU are, and where that SKU isn’t selling.

“We’re working with our partners by sharing data, showing that in these sections of our footprint, your product’s not selling. At the same time, if a supplier has an innovative product or a better product that is turning, we can work together to do that. But we are not automatically going to conclude that all stores will get the same SKUs. That approach doesn’t work, and we’re not doing that anymore.”

The reassessment comes amid Walgreens’ push to streamline operations and reduce costs, with the aim of saving at least $1 billion in 2024. While efforts to rationalize store payroll and staffing are bound to impact the front end, the non-script side of the business has a few things in its favor. For one, the front end has always been the higher-margin business for the drug store chain. And margins at WBA’s prescription business, which accounts for 78% of sales, remain under pressure from Medicare reimbursement. “At the end of the day, it’s all about growth for us and growth for our partners. After the things all of us have experienced in recent years, we believe the new normal, both for people and for organizations, means you must know how to navigate uncertainty and change,” says Brown.

“If you look back over the decades since the Great Depression, there are several companies that grew throughout that time frame, so you can actually start to stitch together a bit of a playbook,” she adds. “What you don’t do is hunker down and just wait for the storm to pass. The successful organizations actually leaned into their capabilities, innovation and future thinking. They leaned in and invested in places where they believed they could create differentiation. They focused on very purposeful and intentional actions.”

Walgreens is following their example. The retailer is developing new ways to build on existing strengths at the front end, Brown indicates, including the deep connections it maintains with customers, 10 million of whom visit one of its stores every day, and omnichannel capabilities that fulfill 80% of orders within an hour, enabling Walgreens to “reclaim convenience.”

An increased emphasis on private label merchandise, which accounts for 17% of sales at WBA and generally yields higher profit margins than national brands, is an important aspect of the front-end strategy. Brown and her colleagues see the store brand business as having significant upside ­potential.

“Own brand is a traffic driver,” Brown says, “so we want to increase the instances where we have unique, innovative, only-found-in-Walgreens products. We are one of America’s most trusted brands, and people know they can trust us for health and wellness. You’re going to see us leaning deeply into that category, because we have trust.

“Our own brand will complement products from supplier partners who are willing to be more aggressive, more innovative, and are using data to create value. Those are the partners that we will work for and work with. It will not be come one, come all, because how we serve the customer isn’t come one, come all.”

Modifications in the merchandise assortment are accompanied by the evolution of stores. Walgreens is now in the midst of redesigning “our macrospace and microspace,” according to Brown. As with the product mix, revamped planograms will be deployed in locations where they make sense, depending on the characteristics of a given community and the needs of the people who live there.

Of all the changes afoot at Walgreens, perhaps the most telling is the shift in the way store-level personnel are remunerated. Going forward, compensation will be tied directly to the performance of the store where associates work.

“Those who are closest to our customers and patients know how to serve them best,” says Brown. “Part of our changing the compensation structure was really going back to how Walgreens started — we grew general managers that ran their stores as if it was their business. They were compensated as such. They had the tools as such. They had the empowerment as such. We’re committed to striking the right balance between autonomy and ­centralization.

“If you’re compensated based on the performance and the growth of your store, that’s a lot different than having the majority of your compensation tied up in what WBA does. You’re not as motivated, because you feel like you don’t have control of what is happening up here, but you should have control of what’s happening at your store. So we began by realigning ­compensation.”

Walgreens is providing tools that ease store-level workers’ jobs and free them from mundane tasks to spend more time with customers.

“Of all the things we’re doing, I think this is the unlock that’s actually going to fuel growth,” says Brown, whose previous experience includes a stint as senior vice president of operations and chief experience officer for Sam’s Club. “This is everything to me, honestly, and because I grew up as a retailer who understands the importance and the impact of the front line. Our competitors can copy what you do in a lot of ways. What they can’t copy is how you deliver at the front line.”


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