Walgreen 'Consumer-Centric Retailing' Remodels Carry $275 Million Price Tag

Drugstore giant Walgreen is embarking on an ambitious remodeling program of nearly three-quarters of its stores. Approximately 5,500 of its 7,500 locations are targeted for "Consumer-Centric Retailing" (CCR) refreshes. The retailer has already opened or converted 1,800 stores, and expects to have 2,000 CCR stores by the end of this year.

In addition, Walgreen began piloting a customer loyalty program in three markets beginning in May, looking to a possible nationwide rollout some time in 2011.

The store renovations, which carry an average cost of $50,000 per location, encompass more than its physical look and layout. "CCR is reducing working capital and store labor," said Greg Wasson, Walgreen's president and CEO, during a recent conference call. "It is improving sales and the overall shopping experience by optimizing and enhancing our existing product assortment, by improving category and product adjacencies through improving sight lines throughout the store, and by refreshing all our stores with a new in-store décor package."

Walgreen has been testing the performance of a pilot group of CCR stores. For the 26-week period that ended May 29, 2010, these stores outperformed the control group of stores by 2.6% across all product classes. The CCR stores performed even better in the 26-week period that ended August 28, outperforming the control stores by 3.7%.

Walgreen has made significant back-end investments in its CCR initiative. "CCR is much more than just what you physically see in the store," said Wasson, noting that the company has "rebuilt the entire plumbing of our merchandising process" during the past 12-18 months. "We have much better sophistication in the systems to be able to manage multiple planograms or categories," he reported, adding "We've really improved our ability to understand pricing in that delta we're talking about for convenience," said Wasson. "It's frankly a lot of process system improvement that 's helping us manage that and achieve that balance…between price and promotion, more so than we have in the past."

Wasson also revealed that Walgreen began piloting a loyalty program in three markets in May 2010. "We're encouraged with the early results," said Wasson. "Also, as you know through the acquisition of Duane Reade we have acquired a loyalty program that gives us some rich data." He added that Walgreen "should have enough data after the first year to begin to think about when we'd go nationwide."