Baby-boomer members are Walgreen’s darlings

Filed under: Retail |

Walgreen Co., the largest U.S. drugstore chain based on revenue, posted an increase in prescription drug sales during the third quarter, citing the Medicare drug benefit program as the source.

The company reported a 14 percent increase in third-quarter earnings with a steady expansion program. New stores are on record pace, with 475 opened during fiscal 2006, and plans for 500 more in fiscal 2007.

The expansion push was prompted by the aging of the baby-boom generation and its increasing demand for prescription drugs, as well as seniors living longer.

Prescription sales made up 65 percent of total sales, and climbed 13.5 percent overall and 9.3 percent at comparable stores, or those open at least a year.

Net income for the quarter ended May 31 was $469.2 million, compared with $411 million a year earlier.

Revenue rose 12.4 percent to $12.18 billion from $10.83 billion, with same-store sales up 7.6 percent.

During the quarter, Walgreen announced a deal to buy the 76-store Happy Harry’s Inc., a privately held regional drugstore chain based in Delaware.

Department store power players making history

The acquisition of May Department Stores by Federated Department Stores and the merger of Sears and Kmart are two defining events shaping today’s retail industry.

Sears and Kmart bring together two opposites. The new Sears Holdings operates mall-based department stores, discount stores, hardware stores and paint stores, and at the time of the merger was testing a supercenter concept that featured general merchandise and a limited assortment of supermarket goods.

Sears Holdings is the fourth-largest retailer in the country with sales of $53.96 billion, behind only Wal-Mart, Home Depot and Kroger in STORES magazine’s annual ranking of the Top 100 Retailers. Kmart was ranked No. 14 and Sears No. 9 in 2005. The report is an annual snapshot of the retail industry, ranking companies by revenue and grouping them on one chart regardless of the segment or segments in which they operate. STORES is the monthly magazine of the National Retail Federation.

“The allure of the department store is making a fast comeback,” said Rick Gallagher, STORES Publisher and NRF vice president. “Retailers are quickly learning how to appeal to all generations with new product lines, stylish private-label brands, and exciting marketing techniques.”

Federated Department Stores, ranked No. 20 in 2005, jumped six spots to No. 14 with $22.39 billion in revenue after reporting combined Federated and May sales.

Despite increased competition from department stores and discounters, Wal-Mart once again emerged on top with 2005 sales of $315.43 billion, a 9.5 percent increase compared to 2004.

In a tight fight for fifth place, Costco edged Target (No. 6); sales for each company were more than $52 billion.

The housing boom resulted in strong profits for home improvement retailers, which also showed strength in 2005. Home Depot maintained the No. 2 spot with $81.51 billion in sales, an 11.5 percent increase, while its main competitor Lowe’s (No. 7) finished with $43.24 billion, an 18.6 percent increase from the previous year.

Another major event in 2005 was the dismantling of the Idaho-based grocery store Albertson’s, which slipped three spots to No. 9. Safeway (No. 10), which was unable to capitalize on any of Albertson’s stores, now has the opportunity to increase its market share in select areas.

Kroger, having less overlap in store locations, maintained the No. 3 spot on the list with sales of $60.55 billion in 2005.

Lifestyle stores offering natural and organic foods such as Trader Joe’s (No. 57) and Whole Foods (No. 55) have posed new threats to the traditional grocers in recent years and didn’t let up speed this year, each climbing higher on the list.

Natural disasters in the United States and overseas caused gas prices to surge in the latter half of the year, helping boost sales at 7-Eleven and pushing it up two spots to No. 24. As a result, the Top 100 list also welcomed other convenience store giants like WaWa (No. 53) and Sheetz (No. 74).

J.Crew transforming into hot fashion chain

Amidst an industry consumed with consolidation, J.Crew has announced plans to go public.

According to Richard Peterson, a research analyst at Thomson Financial, J.Crew’s IPO is the biggest retail IPO, excluding restaurants, since 2002, when Petco Animal Supplies Inc. raised $275.5 million in a stock sale.

Federated Department Stores Inc. is one example of a recent consolidation. The company is selling its Lord & Taylor chain and converting all other stores to its Macy’s brand. Although Gap continues to struggle with its fashions, it is expanding Forth & Towne, launched last year to cater to baby boomers.

J.Crew has managed to reverse its fortunes by transforming into one of the hottest fashion chains. J.Crew resolved a long-standing identity crisis, returning to its preppy roots while also offering more upscale merchandise. Its clothes range from $20 cotton T-shirts to $550 tuxedo jackets for men.

In early June, the company reported a 60 percent increase in first-quarter profit as sales showed double-digit gains. Its clothes are sold through 164 retail stores, 45 factory stores, a catalog and a Web site.

For fiscal 2005, J.Crew posted net income of $3.8 million compared with a loss of $100.3 million a year earlier. Revenue rose 18.5 percent to $953.2 million.

Joan Johnson covers retail for the Colorado Springs Business Journal.