CVS Health to close 70 stores
CVS Health has embarked on a three-step streamlining initiative with a goal of saving approximately $3 billion from 2017 to 2021.
Two-thirds of the savings will be seen in CVS’s retail/long-term care segment, with the remaining one-third of savings seen in the pharmacy benefits manager category.
The new initiative will include the closing of 70 stores in 2017. The store closings should provide a $265 million benefit to CVS, mostly in 2017, and will help CVS deliver higher returns for shareholders over the long-term,” Dave Denton, executive VP and CFO of CVS, stated during Thursday’s CVS Analyst Day.
Denton also said the Woonsocket, R.I.-based retailer will “continue to provide convenient local access to the millions of patients we serve on a daily basis.”
CVS also is enhancing efficiency of corporate shared service, which involves consolidating similar activities across business units. The retailer has already begun the process, with Denton announcing early promising results, including 15% to 20% reductions in labor costs for relocated activities.
The final step, expected to save CVS between $700 million and $750 million per year, is to optimize the pharmacy platform. This involves seamlessly redistributing various aspects of pharmacy workload to better maximize script fulfillment capacity through use of process redesign and technology.
Denton also announced during his CVS Analyst Day remarks that the company approved a dividend increase of 18% for 2017. Hence, CVS will pay out $2 per share in dividends, per year, next year.
Is this because of the new Target store pharms overlaping with stand alone stores within the same area? The story doesn't say....
How Amazon’s Transportation Plans Could Impact Retailers
The pressure is on for retailers to not only meet customer expectations, but to exceed them as differentiation in the retail industry becomes paramount. Amazon has raised the bar for expectations with offers such as same-day delivery and free shipping, as well as spread its influence to become one of the world’s biggest retailers.
As the battlefield moves into logistics, retailers continue to eye Amazon warily as it builds its international network. They are constructing a massive fulfillment facility network that allows two-day delivery service as well as a same-day option. The company is also growing its cross-border and fulfillment services. The result? Amazon is becoming a global logistics provider and could potentially rival the likes of DHL, FedEx and UPS.
In the United States, Amazon is expanding its footprint with more than two dozen new fulfillment facilities in 2016 and linking these to its sortation spaces, delivery partners and its own nascent airfreight and ground capabilities. Combined, these capabilities allow Amazon to deliver goods to customers quicker and more efficiently. In addition, Fulfillment by Amazon (FBA) continues to gain traction with small-to-medium size businesses that are looking to take advantage of such perks as Amazon Prime, preferential placement on Amazon’s website, and the outsourcing of fulfillment and shipping.
The situation in Europe is similar as Amazon introduces faster delivery times. While U.S. logistics providers FedEx and UPS have refused to publicly acknowledge that Amazon is competing on their home turf, DHL in Europe has noted that Amazon is indeed a threat and British Royal Mail has confirmed that Amazon is affecting their business.
In Munich, Germany, has Amazon has 240 delivery vans operated by six sub-contractors, and according to German business newspaper Handelsblatt, Amazon has taken about a third of DHL's business in Munich. DHL’s CEO has stated that Amazon is both one of their largest customers as well as competitors.
Meanwhile, as Amazon gains ground in both the US and European markets, Asia has become more problematic with Amazon rethinking its strategy. In 2004, Amazon entered the Chinese market by adding Chinese e-tailer, Joyo.com. At the time of the acquisition, an Amazon spokesperson said of its Chinese strategy, “Amazon will use the same template for running the Chinese operation that it has applied in other regions, making sure that it respects local customs and regulations regarding the products it sells in the region.”
This strategy soon proved difficult as it struggled to improve upon its approximate 2% domestic market share (Chinese e-commerce behemoth, Alibaba, has a projected an 80% share of the domestic Chinese market).
With its new airfreight capabilities, Amazon has shifted gears once again, launching its cross-border capabilities between the United States and China. As a result it has reduced delivery times for U.S. Amazon Prime members from an average of eight days to five days on items such as USB cables, smartphone screen protectors, cosmetics and other small, flat products. This makes Amazon’s delivery of small, inexpensive items from China much faster than the two weeks to 30 days it can take using marketplaces owned by Alibaba Group Holding Ltd., EBay Inc. and Wish.com.
China isn’t the only geographic region where Amazon is looking to gain. It is rumored that the company will be expanding into Southeast Asia in early 2017 and will compete head-to-head with Alibaba for dominance in this growing market.
India is also a much sought after region for Amazon as it pumps billions of dollars into that domestic market. Competing with leading local online marketplaces Flipkart and Snapdeal, Amazon established a subsidiary, Amazon Transportation Services Private Limited, to deliver goods directly to customers and is taking market share from the two leading Indian online marketplaces.
As Amazon expands across the globe, enhancing its logistics capabilities as well as adding to the list of perks for its Amazon Prime members, retailers as well as logistics providers are taking note. Concede or fight back is the thought on many businesses’ minds. Logistics providers are fighting back by improving their own networks while retailers are offering faster delivery services; but this begs the question, “at what cost is all of this being done?” For logistics providers such as DHL, FedEx and UPS, operations investments are a norm and are usually included in annual budgets. However, for retailers, the margins can be much tighter and the increasing logistics costs may be more difficult to recoup in retail sales.
Instead of trying to fight back, maybe it’s time for retailers to consider Amazon as a logistics partner. Among the benefits are the ability for retailers to reduce costs if Amazon is managing both a retailers’ fulfillment and transportation needs. Also, in terms of sourcing from Chinese suppliers, retailers can benefit by having their goods remain in one network without any handoffs to other logistics providers. In other words, Amazon is able to pick up goods from a Chinese supplier and either utilize its NVOCC license and arrange ocean freight, or use its airfreight capabilities to ship the goods straight into one of its US fulfillment facilities (and ultimately to the customers’ front door or locker). It’s not an easy decision, given Amazon’s track record of cutting out the intermediary and going straight to the end customer.
Determining Amazon’s impact on retailers will certainly vary from one retailer to the next. As with any strategic plan, one must do their homework and perform critical analytics. Welcome to the new retail industry dynamics.
John Haber is founder & CEO of Spend Management Experts, where he provides the vision and strategic oversight helping clients save an average of 20% or more in logistics spend.
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Post-Election Analysis: What’s Next for Labor?
With most of the business community absorbed in the quadrennial D.C. parlor game of parsing cabinet picks and what they might mean for their industry's agenda going forward, little attention has been paid to what lies ahead for the labor community.
As a result of the labor community’s failure to produce critical outcomes it pursued for the presidency, Congress and governorships, unions will be forced to abandon much of the political and legislative agenda they had developed in anticipation of a friendly Clinton administration. The question is this: Do they retool that political agenda or do they turn their collective attentions temporarily away from politics and get back to old-fashioned organizing?
There is always a competition within unions for attention and resources between the political side of the house and the organizing side. In fact, in 2005, when five unions led by SEIU splintered off from the AFL-CIO, it was mainly because those unions thought the AFL-CIO was spending too much time and money on lobbying and not enough on organizing. That rift has since healed, but the underlying debate rages on. And the election results show that the millions of dollars spent trying to get Hillary Clinton elected and a democratic majority in the Senate went largely wasted. Not to say that the organizing side is taking an "I told you so" posture, but you can bet they're thinking it.
My guess is that the unions will face the fact that their future lies in fostering a renewed vigor for organizing. It’s not just the election results that are informing my opinion. It's also developments in organizing technology and new tools that could give them the boost they need. Now it appears unions are embracing automation as well.
App Targets Walmart Workers
One example of that is a new union-backed app called WorkIt (which is currently available on Android devices) developed to target Walmart workers. Similar to many companies, Walmart’s wage and benefit portal is only accessible within Walmart stores (on company computers). Not only did the creators of WorkIt obtain Walmart’s benefit packages, employee policies, human resource documents and employee guidelines, they uploaded them into the app for the purpose of answering any question workers have.
The app is powered by IBM’s highly sophisticated server known as Watson and if Watson cannot answer with 100 percent accuracy, questions are kicked to peer volunteers. The union-backed group OUR Walmart, leverages WorkIt to engage with workers who they have already been attempting to organize for years. They want workers to use their app to navigate benefits and leave options, wage and hour issues, plus other workplace rights instead of using existing company portals, which some may find difficult to use and unhelpful.
In essence, this is serving as a scaled-down version of a union in the workplace — a silent entry point that provides value to workers. The app will uncover areas in which workers believe management is not representing their interests. That opens the door to a later conversation with a third party group (an in-person union rep) advocating on their behalf. The most powerful functionality of the app is that it collects personal data about a company’s workers and whatever needs they have that are not being met. If OUR Walmart is successful in drawing in users to WorkIt, they will know the top concerns of Walmart’s workforce geographically and potentially by store location, and will have a working database of would-be union members for future organizing drives.
WorkIt is funded by the SEIU’s Fairness Project, George Soros’ Open Society Foundation and OUR Walmart, among others. The app was created by the same team the American Civil Liberties Union (ACLU) used to launch a similar program to capture acts of police brutality and misconduct. The app was designed as a prototype with the expressed intent of replicating it in other campaigns against other companies.
In another technology related development that started in late 2015, the NLRB approved e-signatures on union authorization cards. Prior to that ruling, union organizers were required to physically collect an employee’s signature on an authorization card. This online effort began to show signs of hitting its stride in mid-2016 and today, organizers can collect cards through a basic click on a mobile device. It is a simple mechanism that requires very little thought on behalf of the user.
Most serious organizing campaigns now include or depend on e-signatures. The technology is progressing in a way that makes the signup process easier every day.
For example, the recently launched Web portal Unionize.me represents the next generation of online capabilities. The site currently features organizing campaigns at Walmart, Starbucks, Chipotle, Home Depot, Target and Whole Foods. Consider the environment at Chipotle for a portal like Unionize.me — 10,000 workers recently sued the brand for “wage theft.”
If Unionize.me virally spreads within that network where workers already feel cheated, then Chipotle will rapidly have a significant labor relations challenge moving forward. Everyone is exposed, even brands that have historically been favorites of the left. There is no way to know if the next NLRB, populated with Trump appointees, will roll back e-signatures, but a new board probably would not make it an immediate priority. Even if it becomes one, getting rid of e-signatures could take years.
So while business leaders are intently focused on new and unexpected legislative, regulatory and political opportunities in Washington, they can't afford to lose sight of what is happening with their workforces and workplaces. A new focus on organizing, buoyed by significant advances in technology, could mean the labor community may one day view this past November as a battle lost on the way to winning the war.
Joe Kefauver is managing partner of Align Public Strategies, a full-service public affairs and creative firm that helps corporate brands, governments and nonprofits navigate the outside world and inform their internal decision-making. Align specializes in service sector industries.
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