DEERFIELD, Ill. -- To boost Walgreens presence in urban markets such as Los Angeles and New York, Walgreen Co. CEO Jeffrey Rein is developing several designs for stores that would be about half the normal size of the 6,297 stores the company operates. Smaller stores are key to further penetrating densely populated markets with limited available real estate, Rein said. "As we look at areas where we are not, a smaller store makes more sense for us," he told Crain's Chicago Business. "This makes us more flexible and more nimble."
Walgreens new stores—at about 6,000 to 8,000 square feet [image-nocss] versus 14,820 square feet—would have about 17% less inventory, Rein said, mostly offering shampoo, toothpaste and other toiletries. "You have to carry products that are relevant to your clientele," he said. They would also have 22% lower facility costs and 22% fewer employees, said the company.
The smaller-store initiative comes as Walgreen throttles back broader expansion plans to soothe shareholders' concerns that the company may be overreaching in a slumping economy, according to the report. Walgreen said this month that it will curb new-store openings to 5% a year by fiscal 2011, from a prior 9% target, to save $500 million.
The company faces challenges if it is to run profitable businesses in the Northeast and Southern California, where retail rents are among the highest in the country, Crain's said. While smaller stores have fewer employees, a 7,000-square-foot shop in Manhattan, for example, must generate sales at or above those of a typical 15,000-square-foot suburban store to make a profit.
"They are going to have to have really heavy foot traffic because urban sites are expensive stores," Erik Gordon, an associate dean at the Stevens Institute of Technology in New Jersey, who studies retail industry trends, told the publication.
Prime retail rents in cities like New York can range from $276 to $1,500 per square foot. Even at the low end, that's quadruple the average asking rate—$69.35 a square foot—for space on Chicago's Magnificent Mile.
Deerfield, Ill.-based Walgreen, which has several smaller shops in downtown Chicago, generated about $8.9 million in sales at each of its stores last year, on average. The company declines to provide per-store profit figures.
Rein also must find ways to set Walgreen apart from CVS Caremark Corp., which operates more than 1,500 stores in the Northeast, the report said. That compares with Walgreen's 599 stores in the nine-state region.
Walgreen is also open to acquisitions to gain stores, Rein added, declining to give specific targets.
The company also recently accelerated to rollout of its Café W beverage-center concept, potentially offering a greater threat to neighboring convenience stores. The new stores include a "W Market" section in the front of the store that features many traditional c-store products and a 12-foot coffee/beverage counter along the front wall near the checkout. (Click here for CSP Daily News coverage. And for more on the chain as a potential channel threat, click here.)
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