Though the new year has just begun, several significant developments have already given indications that 2012 will be a special period for mass market retailing.

David Pinto, Walgreens, Chicagoís Loop, Express Scripts, PBM, Walmart, Brian Cornell, Samís, Costco, Mike Duke, Jim Sinegal

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Inside This Issue - Opinion

Special period for retail begins

February 6th, 2012
by David Pinto, Editor

Though the new year has just begun, several significant developments have already given indications that 2012 will be a special period for mass market retailing.

Before the year was 10 days old Walgreens opened a 20,000-square-foot “health and daily living” store in Chicago’s Loop. Some 500 suppliers, guests, politicians (including Chicago’s mayor and the governor of Illinois) and media types joined a group of Walgreens staffers at a Walgreens-hosted reception at the store on the day preceding the opening. On the following morning, January 9, the new unit opened its doors on the corner of State and Randolph Streets, a site that Walgreens had once ­occupied.

As is the case with so much that Walgreens is doing, the store represented a radical departure from much the drug chain had stood for and represented in recent years. In size, in product assortment (the unit offered a wine department with retail prices often running into the hundreds of dollars, while the food selection presented choices rivaling those of a supermarket), in the placement of various departments (the pharmacy is located on the second floor), the drug store is different from its predecessors (though similar to the Wall Street store Walgreens-owned Duane Reade opened in New York City last summer) — and, according to most who attended the preopening reception, more exciting as well.

How the new store ultimately performs is less important than the statement Walgreens has made in conceiving, designing, stocking, staffing and opening it. Indeed, this is not only a new Walgreens but a new drug chain, one characterized by a boldness of vision and an aggressiveness in pursuing that vision. As a result, Walgreens has become the talk of the chain drug industry, a subject of discussion, debate, conjecture — and admiration. It’s been some time since Walgreens engendered this much talk — and this kind of praise.

Speaking of Walgeens, the chain has taken on ExpressScripts, one of the nation’s largest pharmacy benefit managers, by refusing to accept the PBM’s terms. This action has caused more controversy than the unveiling of the retailer’s new Chicago store. For good reason. Walgreens initially stands to lose considerable prescription revenue by taking a position against the demands of Express Scripts and, by extension, the entire PBM industry. Indeed, several attendees at Walgreens’ annual shareholders meeting earlier this month were vocal in expressing their displeasure.

Walgreens, however, appears to be taking the longer view in this conflict. Rightly so. It appears that Express Scripts was earning more on each prescription Walgreens filled than did Walgreens. That didn’t appear fair or equitable — at least to Walgreens. And others in community pharmacy are beginning to agree. One thing’s for sure. The current economics surrounding community pharmacy are neither equitable nor fair. Pharmacists are highly skilled professionals whose expertise is neither appropriately recognized nor adequately rewarded. Walgreens’ stand against Express Scripts’ terms is a first step toward changing that situation.

Before January was out Walmart announced a series of personnel changes, most of which went largely unnoticed. There was one exception, however. The retailer announced that Brian Cornell, the executive behind the dramatic and impressive transformation of Sam’s, Walmart’s warehouse club unit, from an also-ran to a serious competitor to Costco, would be leaving the company to pursue other interests in another part of the country. Cornell had been seriously viewed as a candidate to replace Mike Duke as Walmart’s CEO when the time came for Duke to retire. Clearly, that is no longer the case. Just as clearly, Sam’s has lost something with Cornell’s ­departure.

There are early indications in this new year that brick-and-mortar retailers will no longer tolerate the increasingly common supplier practice of selling merchandise to online retailers at terms that allow online companies to underprice their brick-and-mortar counterparts. Many brick-and-mortar retailers are tired of a practice that allows online retailers a price advantage while their more traditional counterparts remain the supplier choice when it comes to introducing products to consumers and educating those consumers about the benefits the products offer.

Target has become one of the first major retailers to publicly object to the supplier practice of allowing online retailers to underprice conventional retailers while simultaneously depending on brick-and-mortar retailers to generate consumer buzz around those products. Other retailers will certainly add their objections in the months ahead.

Finally, Jim Sinegal, the founder and CEO of Costco, has officially retired. If there is anyone out there who believes Sinegal’s departure will not affect America’s most exciting and productive retailer in ways large and small, we’d like to hear from you.