Walgreen Multitasks to Fight Recession

Consultants, analysts and pundits have been lining up to talk about how the recession is changing consumer behavior, but it is changing retail behavior as well, and Walgreen is an example of how.

Walgreen typifies the retailer that, in the recession, is intensifying how it addresses operations, looking for ways to add services, cut costs and provide consumer discounts all at the same time.

Pharmacy has been a focal point of Walgreen’s efforts. It has expanded an initiative dubbed POWER pharmacy, fully implementing the program across half of its Florida stores even as it gears up more than 30 Arizona locations by introducing initial key components. The POWER program is designed to reduce costs by centralizing order entry, insurance filing and pharmacy filling functions for some chronic disease medication in the plants that ship medicines under Walgreen automatic refill service. In Arizona, the locations in the POWER program are shifting some prescriptions for chronic disease medications to a refill facility in Tempe.

Yet, said Greg Wasson, Walgreen CEO, because it takes some mundane and administrative tasks out of stores, the POWER program frees pharmacists to act as health advisors, and, so establish bonds that can transform casual shoppers into loyal customers. Walgreen plans to have the POWER pharmacy in full operation in all Florida stores by year’s end, which would put 10% of the total chain under the program. In a conference call, Wasson said that the company anticipates achieving “cost savings, productivity gains, and improved pharmacy patient experience through the rollout of POWER pharmacy.”

To give customers and pharmacists more to talk about, Walgreen has been expanding its Prescription Savings Club to offer a 90-day supply of more than 400 generic medications for $12. This list of value-priced generics includes commonly prescribed medications for pain relief, asthma, blood pressure, cholesterol, diabetes and women’s health. The program also offers savings on 5,000 brand name and other generic medications. Walgreen isn’t the only retailer offering customers a deal on generic medications. Some, Meijer and Publix are examples, have a range of drugs they’re providing for free. Walgreen asserts, though, that its program is the most comprehensive available to consumers.

With restructuring costs weighing in, Walgreen earnings slipped in the second quarter, the latest completed, down by 6.7 percent to $640 million or 65 cents per diluted share, but comparable stores increased 1.3 percent. The company wants to build on those positive comps. In addition to its pharmacy initiatives, the company has introduced programs to realign its product assortments — including a initiative promoting its private label and another revamping its approach to health and beauty aids — to boost lagging sales in the general merchandise part of the store. Also, Walgreen has sought early retirement commitments and voluntary departures from some store and field managers in anticipation of layoffs as part of an effort to sheer $1 billion in annual spending by 2011. Hence, the restructuring costs.

Like other retailers, Walgreen is bound to struggle in the current economy and some of its initiatives won’t turn out as expected. Still, it is working to become a leaner yet more diverse retailer, prompted by the recession to put in more effort than it might have deemed reasonable in better times.