CEO of discount department store chain going ‘undercover’ on popular TV show
A CEO who took over family business when he was 27 years old is the next retailer to be spotlighted on the CBS television show, “Undercover Boss.”
Sam Dushey heads up Shoppers World, a family-owned and -operated full-line discount department store chain headquartered in New York City. In his 10-year stint as CEO, Dushey has grown the business from eight stores to 40 locations across 11 states and up to $250 million in annual retail sales. Dushey is now looking expand the company to 500 stores.
To follow Dushey’s challenges as the CEO who returned to his roots in roles he had held as a teenager, tune in to "Undercover Boss" on Sunday, Jan. 3 (8:30 p.m. – 9:30 p.m. ET; 7:30 p.m. – 8:30 p.m. CT; 8 p.m. -9 p.m. PT) on CBS.
“Field intelligence is the best intelligence,” said Dushey. “'Undercover Boss' is the best way to hear first-hand from the employees in the stores. I could never replicate this experience on my own.”
While undercover, Dushey visited four Shoppers World stores: two in New York (Queens and Brooklyn); one in Cleveland, Ohio; and one in the Atlanta suburb of Morrow, Georgia.
The Brooklyn store on Pitkin Avenue featured in Dushey’s "Undercover Boss" episode started as a small corner store and later expanded to cover a full city block. The Morrow, Georgia, store is one of the company’s hottest markets, while the Cleveland, Ohio, location is another of the company’s high-performing stores. Dushey previously worked at the Queen’s store, which the Dushey family founded three generations ago.
“It was an eye-opening experience to observe the people behind the scenes who are running Shoppers World without them knowing it was me,” Dushey said. “Going undercover was the best opportunity to look myself in the mirror and see how I can improve as a leader and provide our employees with greater success and to give back to some of them for all their hard work.”
Now in its seventh season, "Undercover Boss" is a two-time Emmy Award-winning reality TV series that follows high-level executives as they slip anonymously into the rank and file of their own organizations.
7 ways CVS is driving growth in its stores
At CVS Health’s annual Analyst Day held Wednesday here, Helena Foulkes, CVS/pharmacy president, shared significant details on the progress CVS Health has made to drive growth in its stores.
The challenge across the front-end, Foulkes said, is that customers are going to retailers less often. “CVS/pharmacy is combating this by driving larger baskets and more incremental sales, particularly in core businesses like health and beauty,” Foulkes said. And CVS/pharmacy has been getting the job done. Even after exiting tobacco, CVS’ average basket size across the front-end is up 2%. And in such higher-margin core categories as health and beauty, it’s up 4%.
“But the important challenge for us is to drive profitable growth and continue to attract new pharmacy patients,” Foulkes said. “This is the job of our front store team.” It’s a strategy that focuses on higher margin categories like health and beauty at the expense of lower-margin, declining categories like photo and general merchandise.
And it appears to be working — in reset stores CVS/pharmacy is seeing a 2.5% performance improvement since the remodel, Foulkes told analysts.
One year ago, Foulkes presented five key themes for how CVS/pharmacy would drive growth at the front-end of its stores, and build back the loss of some $2 billion in annual revenues from its decision to quit the cigarette business. On Wednesday, Foulkes reported on the significant progress the company has made along each of these fronts:
Better Health Made Easy
CVS/pharmacy is placing a greater emphasis on health with a remodeled “health quadrant” showcasing key categories like vitamin, allergy and cold and “healthier-for-you” food options now in about 450 of its stores. In those remodeled stores, sales of health items are up 1.9% and sales of better-choice food items have contributed to an 8.5% lift in consumables. And as many as 75% of CVS’ shoppers have indicated an intention of shopping more for on-the-go snacking at CVS.
CVS Health is also expanding on innovative health-oriented services in the store, including a pilot of hearing and optical centers in 12 stores. “It’s a great complement to the patient care initiatives offered in our retail pharmacies,” Foulkes said. “By expanding into vision and hearing, we’re giving customers a convenient, single destination for their healthcare needs.”
CVS/pharmacy has also been giving its whole beauty offering a makeover. In the past year, CVS has elevated its cosmetics wall across 4,500 locations, installed more self-service customer units in 1,600 stores and elevated its facial offerings in 2,000 stores. “The enhanced cosmetics wall is more inviting with hot spots to show her colors and new trends,” Foulkes said. “We’re stepping up the facial care look and feel and we’re dedicating end-cap space to beauty elevation in our top stores.”
The overall result is a more upscale look and feel in the beauty department throughout the store that has contributed to a 3.7% lift in beauty and personal care sales in those remodeled stores.
Personalization is a key aspect of CVS’ front-store growth strategy and a recurring theme that plays out in a number of ways, including its “MyCVS” store clustering initiatives. Foulkes shared results in its “y Mas” stores, 11 stores in the south Florida market it remodeled earlier this year to present a new Hispanic consumer-friendly store format, with bi-lingual signage and staff and unique offerings and products.
Sales are up 10% in the CVS y Mas stores, Foulkes noted, with sales up 11% in consumables and up 20% in beauty.
Important, CVS has identified as many as 700 locations throughout the chain with matching demographics. “While we plan to expand the CVS/pharmacy y más concept to additional stores in south Florida, along with markets in Los Angeles and Puerto Rico in 2016, we will need to learn more before we expand more aggressively,” Foulkes said. [pb]
CVS/pharmacy has also been busy leveraging its insights from its ExtraCare loyalty program to feed a more personalized, one-to-one relationship with its customers, and drive more efficient — and more lucrative — promotional investment, deemphasizing promotions on low-margin categories (read: soda) and prioritizing slower moving, but higher margin categories (read: vitamins).
“We’ve made it a point of emphasis in our evolving promotion and personalization efforts to embrace circular promotions that are accretive to margin,” Foulkes said. “The aspiration of our personalization initiative is to aim for the best of both worlds — offers that drive both high sales and high margin growth.”
Those kinds of personalization will pay dividends, Foulkes said, as they target higher value front store customers — the 30% of CVS/pharmacy front-end shoppers who generate 80% of its front-end revenues. “We know a lot more about these shoppers based on their needs and behaviors,” Foulkes said.
Foulkes presented analysts one example of what a high-value customer looks like to CVS, who likes to buy hair color and who is sensitive to promotion. “Our strategy with her is to establish a routine and create a reason for her to visit us weekly,” Foulkes said. “We leverage one-to-one personalized offers based upon her needs.”
The result of that one-to-one communication is an average weekly spend increase of 38% and average redemption rates are up almost two times, Foulkes said.
CVS/pharmacy is investing significantly in an enhanced digital shopping experience. “In just one year the smartphone has become the preferred online hub for ExtraCare customers,” Foulkes said.
According to Foulkes, digitally engaged consumers visit stores six times more per year and spend 4.5 times more. They also fill prescriptions at a rate of 2.4 times higher than non-digital customers, Foulkes said.
Blue Cross/Blue Shield pilot
In three Minnesota stores, CVS/pharmacy has created a walk-in customer service center for Blue Cross/Blue Shield in space once occupied by a declining photo business. “As we test new store formats, this was an opportunity to pilot a different use of the downsized photo lab,” Foulkes said. “For the health plan, having a retail presence inside the CVS store is a cost-effective way to drive member acquisition, engagement and retention. For consumers, it’s a convenient way to access information about their health insurance. For CVS, we see the opportunity for the member to make increased trips to our retail pharmacy,” she said.
Wednesday also served as the official close of CVS Health’s acquisition of Target’s pharmacy and retail clinic business, opening the door to several new markets for CVS — including Seattle, Denver, Portland, Ore. and Salt Lake City.
CVS/pharmacy has a significant opportunity to grow its pharmacy business in Target stores, Foulkes explained. CVS/pharmacy on average fills twice as many prescriptions per pharmacy versus the average legacy Target pharmacy. And currently, only 5% to 7% of Target customers use Target pharmacies — a number CVS Health executives expect to drive much higher.
“What really makes CVS Health unique about how we’re going to approach the Target opportunity is the integrated business model that we have,” Foulkes said. “Different than just being a great pharmacy retailer who’s putting a pharmacy in Target stores, one of the things that made us attractive to Target was that we are integrated business model with a lot of the programs that we talked about like Maintenance Choice, Pharmacy Advisor [and] Specialty Connect, using our client base to now open up these 1,660 stores as a place where their members can get services.”
The finalization of the Target deal brings to CVS/pharmacy more than 1,660 pharmacies that fill more than 100 million prescriptions annually. In addition, MinuteClinic will assume operation of approximately 80 retail clinics — for a total of some 1135 — that represent an additional 430,000 annual patient visits.
CVS Health enterprise on solid footing; raises midpoint of earnings outlook
At its annual Analyst Day in New York Wednesday morning, CVS Health raised the midpoint of its earnings outlook for 2016.
“Over the past several years, CVS Health has been preparing for the changes in the health care landscape by expanding our extensive suite of leading assets and capabilities,” stated Larry Merlo, president and CEO CVS Health. “We are now positioned more broadly than ever with the right strategy across the health care continuum to create real value by enhancing access, driving better health outcomes and reducing overall health care costs. We are the only health care company that is truly channel-agnostic, and we can help drive superior health outcomes as people move through the continuum of care. Our consumer expertise gives us an edge in the increasingly consumer-directed health care environment.”
Don't compare CVS Health to CVS/pharmacy or even CVS Caremark, Merlo told analysts. It's an apples and oranges comparison as CVS Health is today a comprehensive integrated healthcare company seeking shareholder value and growth across the entire healthcare spectrum.
“We’ve built a one-of-a-kind company and we’re not standing still," Merlo stated. "Over the past year we have made long-term, value-enhancing investments and introduced innovative new products. We continued to add to our competitive advantage, expanding our core pharmacy business while broadening our reach into new health care channels. We have become an integrated health care enterprise and we manage the business through an enterprise lens," he said. "We hold leading positions in multiple interrelated health care and pharmacy areas, including retail pharmacy, pharmacy benefits management, specialty, infusion, clinical programs, retail clinics, medical claims editing and long-term care. No one is better positioned than CVS Health to respond to the health care challenges that millions of Americans face throughout their lifetimes.”
CVS Health realized a strong 2016 selling season for the pharmacy benefit management business with $11.5 billion in net new business and a client retention rate of 98%. The company has generated superior specialty revenue growth of approximately 33%, outperforming the rapidly-growing specialty market. In addition, CVS Health has enhanced its generic sourcing through the Red Oak Sourcing venture with Cardinal Health.
Other 2015 highlights include the acquisition of Omnicare, a leader in long-term care pharmacy; the transaction to acquire and operate Target’s pharmacies and retail clinics; continued advancement of the company’s front store growth strategies with a focus on enhancing health and beauty offerings, store brands, personalization and digital; and elevated awareness of the CVS Health brand introduced last year.
“We know that prescription utilization is projected to continue to grow due to the aging population and a higher incidence of chronic disease,” Merlo said. “But we must also keep in mind that this spend has value as pharmacy care is the most cost-effective line of defense against mounting health care costs. Furthermore, we have more ways in which we can engage patients and help drive medication adherence, thus improving health outcomes and lowering overall health care costs.”
In order to address the high cost of prescription drugs, CVS Health will deliver more than $6.4 billion in incremental savings for PBM clients from 2012 through 2016 through formulary management strategies. Growth in pharmacy costs for our clients through September of this year slowed to 6.4%, as compared to 11.8% for full year 2014.
The company raised the midpoint of its 2016 outlook and now expects Adjusted EPS to be in the range of $5.73 to $5.88, reflecting solid year-over-year growth of 11.25% to 14.25%. The bottom end of the range was increased by $0.05 per share from the preliminary outlook provided on the company’s third quarter earnings call. This Adjusted EPS guidance excludes the effect of acquisition-related integration costs, and it assumes the completion of $4 billion in share repurchases during 2016. The company expects to deliver free cash flow of $5.3 to $5.6 billion and cash flow from operations of $7.6 to $7.9. This free cash flow guidance includes approximately $500 million of acquisition-related cash outflows.
The company also announced that its board of directors approved a 21% increase in its quarterly cash dividend, to $0.425 per share on the common stock of the company. The increase translates to $1.70 per share annually, up $0.30 per share. The increased quarterly dividend will be payable on Feb. 2, 2016, to shareholders of record on Jan. 22, 2016. This marks the company’s thirteenth consecutive year of dividend increases; since 2011, the compounded annual growth rate in dividends has been 28%.
“We continued to deliver on our promises in 2015, and our 2016 guidance is no exception”, said Dave Denton, CVS Health executive VP and CFO. “Our outlook for 2016 is nicely in line with the five-year steady state targets we provided in December of 2013, and we continue to target solid enterprise growth and the generation of a significant amount of cash that will be available to enhance returns. We will continue to utilize our free cash flow to drive returns for our shareholders through value-enhancing investments, dividends and share repurchases.”
“Our strategic framework for enterprise growth is centered on growing our core pharmacy business while entering into new spaces in the health care market,” Merlo added. “While adding capabilities to enhance our core business, we will deepen relationships with payors and providers, enhance patient engagement, continue innovation in drug procurement and supply chain efficiencies and execute opportunistic bolt on acquisitions.”
Merlo concluded: “We remain very optimistic about the opportunities that the evolving health care market is creating for CVS Health. I firmly believe that we have the right strategy in this evolving market to capitalize on these opportunities and drive long-term, sustainable enterprise growth and shareholder value.”