DEERFIELD, Ill. -- Walgreen Co. is set to introduce a clothing line, called Casual Gear, to most of its 6,000 stores on April 1, reported The Chicago Tribune.
Walgreens, which stumbled last year when it posted its first quarterly profit decline in a decade, is seeking to boost profits by expanding its in-house brands, which range from nuts to trash bags and now clothing, said the report. The collection of cotton capris, sweat pants, quilted vests and t-shirts for men and women, will be priced at $7 to $15.
While two-thirds of Walgreens sales come from prescription drugs, sold at [image-nocss] counters in the back of the stores, the big margins are in selling "front-of-the-store" general merchandise that the company develops itself, products known as private label. The strategy, said the Tribune, is similar to what grocery stores and department stores have been doing for years: make more in-house brands and profits will follow.
"When you look at what's going on in national brands, margins are very, very tight and national brand pricing is increasingly tight," David VanHowe, vice president of purchasing, told the newspaper. "This is a way to differentiate yourself and improve profit margins."
Walgreens' private-label business accounts for about 20% of general merchandise sales, said the report, up from 12% in 2000. VanHowe, the man behind Walgreens' in-house brand efforts, said he could see pushing it higher, but did not disclose a specific goal.
Rival CVS Caremark Corp. said in January that its private-label business represents 14.5% of general merchandise sales, a figure it hopes to boost to 18% to 20% in three to five years, the report said. At drugstores industrywide, store brands accounted for 12.2% of sales, growing last year at more than double the rate of national brands.
Walgreens has been making private-label products for years. But the number of in-house labels on everything from cough syrup to paper plates and cosmetics became unwieldy, VanHowe told the paper.
Last year, Deerfield, Ill.-based Walgreens created a 10-person department, known internally as the "private-brand police," that whittled the number of in-house brands by half. Officials declined to be more specific, but said the list is getting more manageable.
Brands like the Pure Allure Crystal Collection of jewelry have been removed. Bigger labels such as Deerfield Farms snacks are getting a makeover, and Studio 35, which includes everything from sunglasses to hair brushes, is expanding.
And Walgreens created a "W" label for about 800 commodity items such as shampoo, wax paper and baby lotion. Marked by a bright red circle, the "W" label began appearing in stores in January. The rollout is expected to be complete by fall, said the report.
"We took a really in-depth look at our private-label business," Kristen Abreu, who leads the new department as director of private brands, told the paper. "We left the Walgreens name on all our health-care products. But the name Walgreens didn't mean as much in the sundries category. [Customers] didn't think we were experts in sandwich bags."
The company spent three years interviewing and surveying thousands of consumers about its private-label brands. More than 4,000 consumers participated in market research on the "W" packaging alone, the report said.
Walgreens is also two years into a pilot for Cafe W, an in-store kiosk that sells coffee, muffins, snacks and sodas. Cafe W, much like a convenience store coffee, fountain and snack offering, is in about 200 stores and aimed at increasing traffic, VanHowe said. The hope is that office commuters, moms running errands and teenagers after school will come into the store for coffee or a snack and spend money on other items.
The Casual Gear collection is made by Wonderbrand LLC, a San Francisco-based company formed by Joe Boxer founder Nick Graham. The firm specializes in private-label apparel and makes underwear and sleepwear for Hurley, a youth label owned by Nike Inc. and sold at Macy's and Nordstrom.
So far, Walgreens is doing little to promote the Casual Gear line, outside of an in-store video. The retailer is relying more on its convenient locations to entice time-starved shoppers to pick up a sweat jacket on a chilly night or a pair of cotton poplin sleeping pants to curl up on the couch and sleep off the flu.
The decision to move beyond the common drugstore practice of selling the occasional baseball cap or a logo-emblazoned sweat shirt is a risk, according to the report. Walgreens is run by pharmacists, not merchants. And the retailer, contrary to industry practice, generally doesn't like to call attention to itself. But times have changed, said the Tribune.
Some 41% of shoppers identify themselves as "frequent purchasers of store brand products," said the report, citing the Private Label Manufacturers Association.
Retail consultant Neil Stern hailed the Cafe W test as a "logical" step, but he is skeptical about the clothing line. "It's a tough sell," Stern, a partner at Chicago-based McMillan Doolittle LLP, told the paper. "If you're the pharmacy that America trusts and are known as the credible dispenser of drugs, it's a reach to get into apparel. As marketers, they're not terribly nimble."
Walgreens plans a broader campaign to tout its "W" brand this fall, but it declined to provide details.
Consumer behavior expert Dan Howard said marketing is key if Walgreens is bulking up its fashion quotient, otherwise shoppers won't know what's in the store. "Most people, when they go to a drugstore, have very specific agendas," Howard, a marketing professor at Southern Methodist University, told the Tribune. "Because you're so targeted, you're less likely to be browsing around. That is what you do at Target."Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.