retail news in context, analysis with attitude

Got the following email from MNB user Larry Walsh last week:

It was interesting to read the first two segments of the MNB today, where the post mortem of Ron Johnson’s reign at JC Penny, was immediately followed by a glowing review of the new Walgreens concept.  I think there are some striking similarities between the two.

While not struggling by any means, Walgreens finds itself trying to find solutions for their primary business driver which is filling prescriptions.  Decreasing margins for prescriptions, and an aggressive growth plan which has cannibalized business from its other locations has them looking to make some changes moving forward.  I love their new store concept but here is the rub.

That’s not who Walgreens is, and like JC Penny I’m not sure they can be something so radically different from their roots.

Walgreens for so many years has been about convenience and location.  It is the place where you get your prescriptions filled, and bought cosmetics, OTC items, and a dancing Santa around the holidays.  For decades, they have taken steps to reduce access to the pharmacist, building pharmacies that were designed for high interaction with technicians, not pharmacists.  Now they expect their customers to buy sushi, smoothies, and get a manicure?  All while asking their pharmacists to come out front after spending decades trying to hide them?

As a pharmacist, I love what they are doing, but as someone who has both worked for Walgreens and competed against them, I think you are talking about a huge change in culture.  To attempt to make such a change at a long standing operation like Walgreens could prove to be a monumental task.  Just ask Ron Johnson.
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On the same subject, another MNB user wrote:

I saw the future of Walgreens a couple of years and its name is Duane Reade.  Its store in the historic Trump Building on Wall Street and a couple of locations nearby have served as an almost futuristic laboratory for its parent Walgreens.  This store is just a few minutes walk from the World Trade Center.  As you can tell by the location there are plenty of shoppers and lots of Wall Street suits indulging themselves.

The sushi bar is manned by two chefs during busy times.  Of course there is a well manned juice bar with an accent on fresh fruits and health.  You can buy a keg of Heineken among the many beer choices.  They offer sandwiches from New York’s iconic grocery Zabar’s.

The pharmacy has a relaxing waiting lounge.  The store offers a station where customers can see how various combinations of makeup look on their faces and change at will.  This is a half minute walk from the salon which offers affordable cuts in an atmosphere of elegance.

I am sure you’ll enjoy the full-time greeter.   She never takes her eyes off you as she recites the history of the building and the many unique features of the store.

By the way, an uptown Duane Reade offers a changing variety of intriguing fresh brews in refillable jugs. This is the future of Walgreens.

On the subject of JC Penney's travails, one MNB user wrote:

I think you are dead on about culture.

When Ron Johnson went into Apple he went into a well-defined culture with Steve Jobs still alive. The culture almost demanded that the Apple stores evolve as they did and in that climate the stores were start-ups. When he went to JCP he tried to take the physical outcome of a culture - the Apples stores and how they were created - into  a 102-year-old company with most likely a hodge-podge of century old cultures. Johnson might as well have tried to fly to the moon in a bi-plane.

If you want to see how quickly things can go to hell in retail these days, read "The New Rules of Retail - Competing in the World's Toughest Marketplace" by Robin Lewis and Michael Dart. They write of the many things JCP in their opinion has done right moving toward new retailing. It would be easy to look at things today and say they were wrong, but maybe they were not. Maybe in some ways JCP was doing things right, but got leadership wrong. Which is why I am with you on bringing back old leadership. They need visionary fire, but fire that can build on what Lewis and Dart cite, not on imitation.

I have to feel, though, that it might be too late. I am not sure today's consumer gives many second, and certainly not third, chances.

From another reader:

Kevin, it seems to me that the next people to be replaced at JCP is the Board itself.  That they don’t have a succession plan beyond the former CEO is an indictment of their own shareholder responsibilities, right?

I would agree.

Some folks compared Ron Johnson to former Supervalu CEO Craig Herkert, which led one MNB user to write:

Interesting to read Craig Herkert’s name in MNB after some time.  Fair discloser: I am a long time Supervalu investor.   As such I think the board is there to represent the interests, long and short, of the investors.  Wayne Sales and the board hire Mr. Herkert to “fix” Supervalu, Mr. Sales and the board fired Mr. Herket for not “fixing” Supervalu and put Mr. Sales in to “right the ship”.  Mr. Sales spends less than nine mounts as CEO, finds buyers for the Albertsons banners at .20 cents on the dollar, at which time he steps down and gets a $12,000,000.00 plus golden parachute.  This does not feel like the board looked out for anyone outside the board room.  I wish Mr. Duncan and the new management team all the best, and I am still an investor as I did not pay $4.00 for any of my shares.

We made this point here on MNB at the time - that there were a few people at the top getting rich for borderline incompetence, protecting nothing so much as their own rear ends and bank accounts.

MNB user Mark Raddant wrote:

Regarding JC Penney, this also point to the difficulty trying to make a huge change in a publicly traded marketplace where results are gauged by 3 month windows.  JC Penney has been losing market share and profits slowly for years.  They get an executive who implements dramatic, costly change, not just in store design and layout, but in the targeted customer base.  There is no rational way to think the intended transition in customer base was going to happen in three months!  Old customers will leave, but the development of new customers is going to be an evolving transition.  After reading about the change, I have visited JC Penneys for the first time in years.  The stores are brighter and more inviting and interesting,and over the last few months they are also busier than at any time in the past.  This was change happening: surgery, recovery (the current phase, now ending) and rehab, growth, and fitness, if allowed to follow the path to recuperation.

It will be interesting to see if the board’s response to the market (not the consumer’s trending response to the stores) just ends up killing the patient instead of facilitating a healthy recovery.

On another subject, an MNB user wrote:

The USPS, even with its vast problems, is still the best and cheapest, postal system in the world.  I have been an amateur radio operator for almost 50 years.  During that time I have had many reasons to send mail overseas and receive mail from my friends there.  Our overseas rate just went up $1.10.  Most European countries charge between $2.00 and $3.00 to the US for that 1 oz letter to the US.  If you want an extended explanation as to why we hams use the mail system, I will explain it to you, if you want (just ask, but you may be sorry).  Even though there is some pilferage stateside, there is nothing like the level of mail theft in other countries.  SO what the USPS should do is to keep pace with the rest of the world.  Double what they charge for first class mail and do away with special rates for junk mail (and maybe get rid of most of the stuff going directly from mailbox to recycle bin).  Yes, I have had delivery problems and things that have disappeared into a black hole, but I still think they do an amazing job with what they have to handle.
KC's View: