Store clusters, brands help front-store business

CVS Caremark’s front-store business continues to experience solid performance despite a weak economy — success that can be credited to such factors as a skilled merchandising team, a focus on store brands and a clustering initiative that tailors stores’ merchandise mix based on how the stores are shopped in certain locations.


“The latest data shows that CVS has gained front-store share versus last year when compared to drug store and multi-outlet competitors. Our market share growth in the second quarter was 123 basis points and 18 basis points, respectively,” Larry Merlo, CVS Caremark president and CEO, told analysts during the company’s recent second-
quarter conference call. 


As mentioned, one way in which the company is striving to better meet shoppers’ needs is through its store clustering initiative. 


“The reality is that one size does not fit all in retail these days. Every store has its own customer profile, and we can drive sales by better meeting customer needs,” Mark Cosby, EVP of CVS Caremark and president of CVS/pharmacy, told analysts during Analyst Day in 
late December. 


CVS’ initial foray into My CVS began in 2009 as it varied assortments based on trip-based segmentation and rolled out two different clusters: the food convenience cluster and Urban Cluster.


Starting in 2009, its food convenience cluster — which doubles the amount of space dedicated to consumables — rolled out to 4,000 stores over the course of nine months. The result: a 12% increase in trips.


Meanwhile, the Urban Cluster has been “a big win” for the retailer and has demonstrated the power of My CVS in store clustering.


“The Urban Cluster can viewed as the general store where we implemented this cluster in stores with limited food competition. The cluster focuses on expanded grocery, the addition of fresh on-the-go foods, and we have implemented self-serve checkout units,” Cosby said. The results: an 8% boost in sales and 9% increase in profits.


By year-end 2011, 420 Urban Cluster stores were completed, and the retailer remains on track to complete 50 new urban cluster locations this year.


Now, the retailer is looking beyond trip-based segmentation and is testing several 
demographic-based and volume-
based approaches.


“The company is looking at developing a unique selection for stores in low-income markets, as well as those with a large Hispanic customer base; other clusters are likely, but no specifics were provided,” stated Barclays Capital analyst Meredith Adler in a research note.


Company spokesperson Mike DeAngelis acknowledged that CVS/pharmacy has several other cluster concepts in development, but said the company is not yet prepared to comment, as it plans to begin introducing the concepts beginning in 2013.


Private brands, which provide higher margins, also are a major focus and a driver of front-store business for CVS/pharmacy. They currently account for about 17% of front-store sales, and it is estimated that they can reach 20% of sales over the next few years as the company makes efforts to bring the penetration in food and cosmetics closer to where it is in OTC and other healthcare items.