CVS Q3 beat Street; to test new type of stores
CVS Health on Tuesday reported sales and earnings that beat Street estimates and said its acquisition of Aetna is expected to close by Thanksgiving.
Also on Tuesday, CVS CEO Larry Merlo told Wall Street analysts that the company plans to test concept stores with medical services to learn which are most effective and can be scaled across CVS’ locations, reported CNBC. Some of the services to be piloted include managing common chronic conditions, such as diabetes and hypertension, and combining Aetna’s clinical programs with CVS’ stores to help guide patients when they’re discharged.
“We’re making the consumer experience, which will be in an increasingly important competitive differentiator, and we are hard at work creating a plan to differentiate CVS Health in these patient journeys with the goal of making them simpler and more personalized while making care more accessible,” Merlo said in the report.
CVS’ net income for the quarter rose to $1.4 billion, or $1.36 per share, up from $1.3 billion, or $1.26 per share in the year-ago quarter.
Revenue rose 2.4%, to $47.3 billion, beating estimates of $47.18 billion, fueled by a 6.4% increase in CVS’ retail/long-term care segment. Same-store sales increased 6.7%, with pharmacy same-store sales up 8.7%. Front-end sales inched up 0.8%.
“Strong revenue and adjusted EPS, along with significant cash flow year-to-date, demonstrate our success in driving value,” Merlo said in a statement. “Our year-to-date results continue to validate our confidence in the strength of our model. As we approach the closing of our transformative acquisition of Aetna, our integration teams are making great progress to assure that once final approvals are obtained, we can begin to execute on our integration plans.”
Since the close of Q3, CVS Health received the Department of Justice’s conditional approval of the Aetna acquisition, dependent on the divestment of Aetna’s standalone Medicare Part D prescription drug plans. The company is selling those assets to a subsidiary of WellCare Health plans, with the close subject to the close of the merger. The company now is waiting on five state approvals, with the transaction expected to close by Thanksgiving.
“While CVS and Aetna remain separate companies today, the performance of both companies highlights the very solid financial foundation on which we’ll build our revolutionary new model that will transform the health care experience for consumers and, in the process, deliver substantial value for our shareholders,” Merlo said.
Shoppers Seek Bargains as Discount Formats Soar
Discount stores are thriving. From rural communities to some of the most exclusive urban locations in the country, concepts targeting budget-conscious shoppers are capturing a growing share of sales. Price is understandably a key factor in the success of the format. But discounters have also found a way to tap into their customers’ motivations, offer products that fit their lifestyles, and introduce bargain hunting into new corners of the retail real estate environment.
Brands including TJ Maxx, Nordstrom Rack, and Dollar General are among the retailers that have built followings on their ability to provide consumers with value and convenience. Other discounters are showing up in locations you might not expect. For example, Philadelphia-based discounter Five Below recently announced plans for a store on New York City’s Fifth Avenue. Five Below stores carry a variety of merchandise, with all items costing $5 or less. The future store is a departure from the luxury brands along the iconic street – giving the discounter exposure at a high-traffic destination with the ability to potentially introduce the brand to new customers.
More typically, however, discounters are making their presence known in suburban locations, inside malls, and in other locations such as rural areas that may be underserved by other stores.
One retailer that is using both pricing and geographical advantages is Dollar General. The chain made a calculated decision to build stores in rural areas where many consumers lack access to shopping alternatives. Stores stock many items in smaller packages and quantities for prices under $10. Hundreds of the stores are about the size of a basketball court, and are targeted to communities with fewer than 1,000 homes, the company’s CEO, Todd Vasos, told The Wall Street Journal.
Larger retailers also are looking at new ways to appeal to budget-conscious shoppers. Macy’s is betting that its off-price concept called Macy’s Backstage will attract customers through a combination of convenience and affordability. Backstage locations have set up shop in space within existing Macy’s locations, operating as stores-within-stores with merchandise that’s 20% to 80% off traditional department store prices.
The discount trend extends far beyond apparel or housewares. While general-merchandise stores like Dollar General stock a variety of items including cleaning products, canned goods, and frozen foods, discount grocery chains are also capturing a greater share of supermarket dollars. For instance, the German discount grocery brand Aldi is in the midst of a multiyear expansion into the U.S. market which could bring 2,500 stores by 2022. The stores are small-format locations that focus largely on private label brands.
A Nielsen analysis of supermarket industry value projected growth for discount supermarkets between 2015 and 2020 at nearly twice the rate of mainstream food stores. The stores are generally smaller than typical supermarkets, and they’re expanding quickly. Nationwide, discount grocery retail store counts grew nearly 18% between 2011 and 2016.
The overall number of new discount stores being planned is also worth noting. TJX, the parent company of the TJ Maxx, HomeGoods and Marshalls, plans to open 238 stores in 2018 to complement the roughly 4,000 stores in its portfolio. Dollar Tree recently opened its 15,000th store, and executives say they want to reach a total of 26,000 stores under Dollar Store and Family Dollar names. Dollar General chain plans to open 900 stores this year and relocate an additional 100 locations. Meanwhile, Ross currently has more than 1,600 stores, and the company has its sights set on up to 2,500 stores within 10 years.
Discounters are in a prime position to fill up empty spaces as they are among the highest-performing, most well-respected brands. A recent survey by Deloitte of more than 2,000 consumers showed that both price-based retailers focused on low prices, and premier retailers were outperforming their “balanced” counterparts that focus on price and promotion. Revenues at discounters have increased 37% over the last five years, compared with 2% at the balanced retailers. What’s more, consumers are likely to recommend discounters than the balanced retailers, the study found.
Research shows that consumers who frequent these stores transcend income levels, with studies suggesting that higher-income consumers increasingly are choosing discount destinations for their shopping trips. A survey by First Insight shows that customers making more than $100,000 annually have become more price-aware as mobile technology and other innovations give them an edge in the shopping journey. The survey of 1,000 consumers showed that 42% of these shoppers now shop frequently at discount retailers, compared to 27% who opt for full-price retailers. In addition, 36% of respondents say they do more of their shopping at discount retailers.
It may seem surprising that demand for off-price retailers is so high in a strong economy. The unemployment rate stood at 4% in June, and recent jobless claims have fallen to the lowest levels since in five decades. In the second quarter, GDP increased by 4.1%, nearly twice the growth rate from the previous quarter. In fact, growth in retail spending has surpassed GDP growth.
Retail is a dynamic industry that evolves with the trends and perceptions of its customers. Successful discounters know that success goes deeper than price. Consumers are armed with many options today, so it’s not just important that they perceive that they’re getting a deal but also that they sense they’re receiving value as they shop.
Tom McGee is president and CEO of the International Council of Shopping Centers.
First Look: Guitar Center unveils transformed Hollywood flagship
One of the largest music stores in the United States has been given a makeover.
Guitar Center’s signature flagship on Hollywood’s Sunset Blvd. has been completely redesigned with an eye to offering customers a more immersive and experiential environment. The store, which opened in 1985, has also been expanded, from 18,000 sq. ft. to some 30,000 sq. ft. More than a place to buy musical instruments and related technology and accessories, Guitar Center has been reimagined as a place to create music, to experiment, to sample, to collaborate and to learn.
“Guitar Center’s $5 million-dollar investment into our newly revitalized Hollywood flagship location transforms it into one of the largest musical instrument stores in the world, full of the greatest selection of music instruments, accessories, music memorabilia, state-of-the-art lessons facilities and more,” said Ron Japinga, CEO, Guitar Center. “The redesigned Hollywood store represents a renewal of our legacy which lies at the heart of L.A.’s music scene and celebrates the rebirth of an icon – the greatest music store on earth.”
A vibrant new mural featuring the legendary Jimi Hendrix adorns the façade of the store. The interior boasts an open floor plan with more space, higher ceilings and an unobstructed view of Sunset Boulevard from the guitar room.
New features include a 15-ft long, interactive pedal display (150 pedals), a 24-ft wide snare drum wall with more than 80 snare drums on display, and interactive, plug-and- play displays from such popular brands as Pioneer and Yamaha. The “Vintage + Platinum Guitar” room includes a stage for live performances as well as shoppable wall displays for the Fender and Gibson brands. It also includes Guitar Center’s largest collection of vintage and platinum guitars with classic memorabilia from such legendary artists as Eric Clapton, Johnny Cash, Eddie Van Halen and more.
The second floor is dedicated to a state-of-the-art lessons facility with eight new lesson rooms. Guitar Center offers all kinds of music lessons, from guitar, piano, drums, ukulele, wind instruments, and music production. It will soon offer DJ and songwriting lessons.
Guitar Center currently operates more than 290 stores across the U.S. A new initiative, launching in 2019, is designed to help fill the gap created by the decline in music education, according to the company, and make Guitar Center the national leader in supplemental music education.