What economic slowdown? As retailers across North America struggle to lure customers into existing stores, Shoppers Drug Mart, Canada’s largest pharmacy chain, has just released plans for a huge expansion. Last week, Shoppers announced it will open another 50 outlets over the next five years. This is the latest step in an aggressive push that has made the chain a rare bright spot in a dismal retail landscape. But is its particular mix of prescriptions, food and lipstick enough to fend off the bears?
Shoppers is a dramatically different drugstore than it was a decade ago. Under former CEO Glenn Murphy (now in charge of Gap Inc.), the company branched out into high-end cosmetics and groceries. The stores were redesigned and the company expanded from Central Canada to the West. Those moves helped give Shoppers the strongest bottom line in the industry—it now boasts a profit margin of more than six per cent, even as many other drugstore chains are in the red.
Since taking over in early 2007, CEO Jurgen Schreiber has kept his foot on the gas. Later this year the company will launch a new chain of beauty stores called Murale. And Shoppers aims to add to its 1,110 stores by pushing deeper into Western Canada. Interestingly, the plan is not to create new pharmacies, but to buy existing independent drug stores and put them in bigger new digs averaging 10,000 sq. feet in size.
Robert Gibson, an analyst with Octagon Capital in Toronto, says the strategy makes sense because there’s no shortage of real estate, but trained pharmacists with a long list of customers are hard to come by. The bonus is the larger stores allow Shoppers to sell more of the higher-margin cosmetics and beauty products that boost profits. It’s a strategy Gibson says should do well in a recession.
“I hate to say this, but I’m getting older, and older people need more drugs,” he says. “I don’t want to say they’re recession-proof. But there are some things you have to buy, like food, gas and drugs—while that new pair of shoes can wait.”