An Rx for Women

CVS Caremark aims to be a one-stop shop for stressed customers

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CVS Caremark wants to be Mr. Right to the 4 million female customers who shop there every day. "Women are really stressed out across the country. Everything falls to them," says Gordon Howard, who runs the pharmacy chain's mid-Atlantic region. So, he continues, the company asked itself about its typical customer: "How do we delight her?"

The answer? Make her life easier. During focus group research over the past several years, women—who make up 80 percent of CVS shoppers—told the company that they wanted a store that was easier to navigate, had shorter wait times for prescriptions, and offered more beauty products. CVS has so far remodeled 20 percent of its 6,200 stores to reflect those desires. The result, says analyst Adam Fein of Pembroke Consulting, is a retail format "that is very appealing to working women....[The stores] are larger, newer, and more modern-looking, which is what consumers are looking for."

Score another one for CVS, which is engaged in a heated battle with rival Walgreens for pharmacy chain supremacy. CVS currently holds 12 percent market share vs. 14 percent for Walgreens. The store's bold redesign has been strategically coupled with its just completed $26.5 billon merger with pharmacy benefit manager Caremark, which administers prescription drug and health programs for insurance carriers and employers.

Strong shares. The big-picture goal: to become a one-stop shop for consumers' health needs by offering services traditionally available through PBMs, such as obesity-prevention and smoking-cessation programs, inside its stores. The combined company also hopes that the new benefits business will, in turn, drive retail sales at its stores, which heavily populate the West and East coasts, as well as the Southeast and Texas. So far, investors love the plan and how it's being executed. CVS shares, up 30 percent for the year, continue to outperform those of Walgreens and Rite-Aid. The company last week announced record third-quarter earnings, up 143 percent over the same period last year, largely because of the merger. Same-store sales rose 5 percent. Analysts expect earnings to rise from $1.60 per share this year to $2.32 in 2008. "[CVS Caremark] has the most sophisticated healthcare offering today," says Lisa Gill, a managing director at JPMorgan Securities.

And how will the company fend off retailing behemoth Wal-Mart? Well, Wal-Mart, which has 7 percent of the retail pharmacy market, may be bigger overall and cheaper, but there are a lot more CVS stores. Location is often the determining factor when a tired 30-something mother is deciding whether to pick up her son's ear infection medication at CVS or Walgreens. Larry Merlo, president of retail for CVS Pharmacy, says that over 50 percent of the U.S. population lives within 2 miles of a CVS store. Even though other stores may offer cheaper deals, such as Wal-Mart's $4 generics, Merlo says those savings can't compete with the convenience of the remodeled CVS stores, with their clear aisles straight to the pharmacy and remodeled counters for faster turnaround. Some stores also have drive-through windows. (The company says customers should be in and out in less than 15 minutes.) "Think about having to drive 10 to 15 miles to Wal-Mart, parking 50 yards away and walking to the door, then another 20 to the pharmacy," he says. "Is it really worth the hassle...to go through that to save $2 on one prescription?"

Habits. Analysts tend to agree with that assessment. Gill says that because Wal-Mart's list of $4 generics is limited to a small, older selection of drugs and the large stores tend to be less user friendly, the program has not changed people's shopping habits.

While 70 percent of store revenues still come from the pharmacy side of the business, CVS redesigned the stores to encourage mothers to do a little shopping for themselves. At some of the recently renovated locations, employees staffing the new healthy skin centers offer quick skin tests for moisture and discoloration. CVS has also ramped up its offering of higher-end skin, beauty, and bath products, such as $16.49 lavender, chamomile, and sage bath salts, to assist women looking for a little "me time." Again, focus groups tipped off the company. "We heard, 'Yes, I go into CVS to take care of my family, but what I love about CVS is that I can take care of myself,'" says Helena Foulkes, senior vice president of healthcare services. "There is a need in the marketplace for someone to help women, and this is where we can start to fill in the gap," she says.