The Showroom Floor: Front-End Retail Strategies for Today's Economic Climate

FEBRUARY 01, 2009
Carolyn Heinze

Ms. Heinze is a freelance writer based in Vancouver, British Columbia.

Undeniably, for anyone in retail these days, it is touch and go—although consumers are still spending, they are demanding that their dollars go further. Impulse buys are no longer so impulsive, and large purchases have, in many cases, been put on hold. Among the retail establishments out there, pharmacies are arguably in an enviable position— whether the economy is strong or weak, individuals still need their medicine, which drives traffic through the front end of the store.

Still, pharmacies are not entirely recession-proof, requiring owners to be wise in their front-end retail strategies. Although the temptation may be to cut back and batten down the hatches for the rough ride ahead, the risk is that if the store appears too sparse, the owner may be projecting an image that is detrimental to the pharmacy's overall well-being.

"The front end of your store is less than 10% of your business, but it is 90% of your image," says Gabe Trahan, an independent consultant and director of retail services at Burlington Drug in Georgia, Vermont. "Independent pharmacies have got to control their inventory in a better way."

He argues that carrying 1 or 2 units of each item sends the message that the product is so expensive that even the pharmacy itself cannot afford to stock it. "I fear that, in this economy, the independents and even the chains are going to cut back on inventory, which makes it look like you are almost out of business." If your front end is poorly stocked, he challenges, why would customers believe that the situation is any better behind the prescription counter?

For independent pharmacies, the items that are often the most difficult to move are the "B" of HBA (health and beauty aids): oral hygiene, skin care, deodorant, and hair care products, which see considerable markdowns in the big boxes. Trahan argues that independent pharmacies should reduce their prices in line with what the larger chains are offering in an effort to keep the customer in the store.

"You are never going to get rich selling HBA, but if you are just a little high on the stuff that you do not sell much of, you are telling your customer: ?Get your prescription filled here, but go and get your toothpaste somewhere else,'" he says. Chances are, the retailer that is selling toothpaste at a lower price probably fills prescriptions as well. "Someday, that person is going to be so busy that they are going to see what the competition can do on a prescription."

Trahan advises pharmacies to assess their least successful departments and, on the price-sensitive items (such as toothpaste and hair care), reduce the price—even if this means cutting into your margin. "You are not selling it anyway— you are chasing people to other people's stores," he says. "This is a loss leader that actually keeps people in your store." Instead of adding departments such as photo developing or expanding gift departments that have little to do with health care, he urges pharmacies to be more strategic on pricing the products they carry already—and have knowledge about. "The front end may not be a big part of your business, but it is a big part of your image. If the front end is slightly higher-priced than most stores, then it is going to be tough to recruit a new Rx customer, because they are going to think you are expensive, regardless of whether or not there is a third-party payer."

If you believe that expansion in some areas is necessary, examine what your customers' needs are: plenty of potential exists to develop comprehensive departments dedicated to diseases such as diabetes, arthritis, and bone density. "Instead of being a supplier, pharmacies have to become a partner to their customers," Trahan says. "Our clients are looking for more than just getting their prescriptions filled. If you say to them, ?let us be a partner with you and your doctor,' it will be a big attraction."

Medicine Shoppe International is endeavoring to do this by maintaining a solid focus on patient care. The company's specialty centers concentrate on specific disease states, such as diabetes, as well as home health care. "We are trying to make disease state management more prominent in our stores," explains Mark Kenkel, Medicine Shoppe's director of OTC, adding that these are some ways in which the organization can differentiate itself from the larger chains. "We understand who our patients are and what the age of the general population that comes into our store is. Demographics play a big part of it; we need to offer these specialty care items that are going to differentiate us from the big boxes."

Another way that pharmacies are differentiating themselves is by establishing in-store clinics to drive traffic through the store—an effort that Mary Kate Scott, principal at Scott & Co Inc, a consulting firm based in Marina Del Rey, California, says is very much in alliance with the current economy. "If you think about the rising health care costs and increasing interest of consumers in their own health care, it is no surprise that the consumer likes and prefers the retail clinic," she says.

Although the construction of an in-store clinic may seem like a considerable investment—especially in a down economy—independent retailers have the option of outsourcing the service to a retail clinic operator or a health care provider, such as a hospital system. "If you are an independent pharmacy owner with 1 or 2 stores, it is probably pretty challenging to set this up on your own," says Scott. "You will probably see greater success by working with a partner—whether that is a retail clinic operator or a hospital." She adds, however, depending on the organization, it is possible for an independent drugstore owner to set one up and staff it. Regardless of which business model pharmacies adopt, it is important to assess why the store would benefit from a clinic—would it increase visits from regular customers or attract new ones?

Scott argues that a large chance exists that the store would benefit from a clinic. Developments such as consumer-driven health care, flexible spending accounts, and higher deductibles on health insurance plans have consumers taking more control over their health and wellness expenditures. "They are taking a much more active role in how they think about spending money on prescriptions, on OTC products, and how they manage visits to health care professionals," Scott says. In doing this, individuals are turning to their pharmacies for advice on what health care options are most effective, both in terms of patient outcome and cost.

"That is why we have seen generic prescriptions go up, flexible spending accounts being used, and retail clinics being used," Scott says. "The consumer is saying, ?Help me figure out when I really need to buy the brand prescription, the generic prescription, or when there is an OTC product that could give me self-diagnosis, or help me understand when I can use a retail clinic so that I can get a great service at a fair price.'"

In an industry where pretty much every retail establishment sells the same products, pharmacies should concentrate on service—the factor that sets them apart from the competition. Not only does this differentiate one store from another, Scott says, but it also strengthens the organization's relationship with its consumers. "You get stronger, deeper customer relationships when you combine service with product."