This edition of HomeWorld Business puts a slight twist on our annual Chain Drug Report by examining Bed Bath & Beyond’s continuing integration of its Harmon Face Values business and its impact on housewares (see story, here).
Harmon isn’t a traditional drug store in that it doesn’t offer pharmacy services. But its approach in health and beauty products follows a similar blueprint to the front-end general merchandising operations of the big drug chains.
The front-end performance by the national drug chains, meanwhile, is under intensifying scrutiny after flat or declining comps the past several months. That threatens to squeeze the growth potential, if it already hasn’t, for housewares in the drug channel.
A sea change is rushing through a chain drug business that is reemphasizing the channel’s prime on-demand position in a market with elevated health and wellness consciousness. From the creation of CVS Health to the Walgreens Boots Alliance and its pending acquisition of Rite Aid, the focus is shifting toward high-margin health services and products and away from low-margin, promotional goods.
It isn’t helping the general merchandise cause that increasing penetration of government-as-payer insurance programs could deflate drug store pharmacy gross margins as much as 30 to 40 basis points annually by some estimates. That makes lean margins from the front-end mix, on top of soft traffic and revenue, even less tolerable to drug store operators.
Housewares industry insiders confirm the mandate by drug chain merchants to be more productive from tighter planograms and inventory. Turn and margin must improve, they’re being told.
Even health, wellness and personal care appliances and accessories that have long been core to the drug store channel are not insulated from the general merchandise shakeup. Vendors in these categories report buyers are being more judicious with their sets against the pressure of big-box and online competition and a potentially shrinking footprint inside their own stores.
So what are housewares companies to do about a channel that is resetting its priorities after once proclaiming bigger, wider general merchandise presentations and promotion as the perfect complement to its convenience and high visit frequency?
They can lament yet another sales-crimping development. Or they can re-evaluate their own priorities and re-commit to understanding the new challenges within the channel and working more closely with merchants to develop products and programs more likely to win a tighter race to the shelves and stay there.
Despite obstacles raised by the health-centric business model shift and unrelenting consolidation by the drug chains, this remains a vital channel with thousands of stores for consumers and the housewares industry.
Extra effort and creativity will be required to earn a coveted place in the front-end mix of chain drug stores. But, then again, what doesn’t require extra effort and creativity in today’s business environment?