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Walgreens shares strategies, rationale for Rite Aid buy at Credit Suisse event


Alex Gourlay, Walgreens Boots Alliance's executive VP and Walgreens president, on Tuesday provided a snapshot of Walgreens U.S. market strategy, including how the proposed Rite Aid acquisition folds into that strategy, during the Credit Suisse 2015 Healthcare Conference here.

Following are four key points Gourlay made that could impact your business as well as a recap of Walgreens' thinking behind the Rite Aid deal:

1. New beauty experience.

Walgreens plans to roll out its new beauty experience, currently in 400 stores across the Phoenix and New York markets, to 1,600 additional stores next year. "[The beauty experience] is about introducing three things," Gourlay said. "First of all the brands - No7, Botanics [and] our new brand Soap and Glory. Secondly, a new consultant model, which allows us to really get across a differentiating experience. And thirdly enhancements to the look and feel [of the beauty fixtures]," he said.

"[Customers in the U.S.] don't always see us as a beauty retailer," Gourlay said, suggesting there is significant upside in converting those shoppers who are already picking up their prescriptions at "America's most loved pharmacy" into Walgreens beauty shoppers.

2. Rationalizing the merchandising mix.

Walgreens may be de-emphasizing consumables and general merchandise in favor of health and beauty, Gorlay said, especially as those stores where that has been tested are delivering optimal results. "We have a lot of space in Walgreens, and we can use that space better," Gourlay said. "We are the most productive drug store chain out there, but we think we can do even better. This means moving more toward a health and beauty model."

Another boost to front-end operating margins over the past few months has been a more disciplined promotional strategy, Gourlay said, noting Walgreens has carefully analyzed the data "in terms of the customer and what they want in their individual store."

3. Investing in the omnichannel experience.

However, one space-friendly category not associated with health and beauty that has proven to be a great success is photo, Gourlay said. While just about everyone else has left the photo business for dead, Walgreens has reclaimed that business as a profit generator by incorporating photo printing capabilities into a number of smartphone apps. "It's a great innovation that is really allowing us to ... personalize that category," Gourlay said.

Walgreens recent incorporation of Apple Pay into its Walgreens Balance Rewards loyalty program is another example of how the retailer is investing in omnichannel engagement. "There is an opportunity to connect that more holistically into the whole of the Walgreens stake going forward," he said.

4. Walgreens' "One Plan" progress.

"We've made good progress since we announced this plan in April," Gourlay said. Walgreens has closed roughly half of the 200 stores it has earmarked for closing, Gourlay said, and a reinvigorated cost-control culture has yielded significantly positive results.

Walgreens has also reorganized its field management structure to provide greater support to stores with more direct line management and by combining pharmacy and retail operations under "one box."

In keeping with Walgreens focus on recapturing its status as "America's most-loved pharmacy," the Chicago-based retailer has invested in improving its speed-of-service across the pharmacy, Gourlay added.

And out-of-stocks have improved across the chain, Gourlay said, as Walgreens has worked toward consolidating its network of distribution centers to realize greater efficencies across the chain. Distribution frequency has even increased across several higher-volume locations. "All of these changes are reducing costs and working capital, and giving customers a cleaner exprience in the store," he said. "We're feeling pretty good about that across the front-end and also in the pharmacy."

Rite Aid.

Walgreens is making all of these significant improvements across the front-end, focusing on beauty, health and wellness and omnichannel, Gourlay said. Walgreens will be able to deliver that differentiated front-end shopping experience to a greater degree across the Northeast and California markets with the Rite Aid acquisition. "Walgreens is very strong in the middle of the country [and] Rite Aid has a really complementary footprint, which allows us to become strong in all these most-important markets," he said. "We think that will be important given the consolidation of other channels and given also the consolidation in other parts of the supply chain."

Gourlay added that Rite Aid possesses an innovative corporate culture that will complement Walgreens' marketing and merchandising initiatives. "We've also got some great ideas from the Rite Aid team," Gourlay said. "We think that the best from Europe, the best from the Walgreens team here in the USA and the best from Rite Aid in the USA will truly give us a new model going forward that will sustain growth into the future."
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