Report: Walgreens Out-of-Stock Hurt Consumer Loyalty

Walgreen’s In-Store Failings Threaten Customer Loyalty and Sales, Says New Report

—Study Finds Out-of-Stock Sale Items Persistent in 76% of Walgreens Stores, Mislabeled Promotions Common in 94%—

—Stores Surveyed in Los Angeles, Miami, New York and St. Louis—

 

New York, May 16, 2013—Walgreen Co.’s (NYSE: WAG) failure to execute the most basic of retail tasks—keeping shelves stocked and correctly labeled—may be undermining efforts to build customer loyalty and raise flagging sales, according to a report issued today by Walgreen Strategy Watch, a corporate transparency initiative of Change to Win.  The report, titled Off Balance: Out of Stock and Mislabeled Sale Items at Walgreens, details how widespread inventory and promotional problems at the nation’s largest chain drugstore may threaten its loyalty program Balance Rewards.

 

During March and April, researchers made three trips to 200 stores for a total of 600 visits in some of the company’s largest markets: Los Angeles, Miami, New York and St. Louis. Key findings of the report, available for download at www.WalgreenStrategyWatch.org, are:

  • Out-of-stock problems persistent at more than three-quarters of stores.  Seventy-six (76) percent of stores had out-of-stock sale inventory during every survey visit.
  • Items were consistently out of stock in multiple markets.  For example, a store-brand feminine hygiene product was out of stock during 73 percent of visits across all markets. 
  • Mislabeled sale items common in nearly every store.  Ninety-four (94) percent of stores had at least one discounted item not marked as on sale during multiple survey visits, and 50 percent of surveyed locations had three or more items that were not labeled as on sale during each visit.

“Our findings point to significant in-store execution problems that raise questions about Balance Reward’s effectiveness in driving front-end sales,” says Nell Geiser, Director of Walgreen Strategy Watch. “For years, Walgreen has been known for its operational excellence, but now we believe management may have lost focus on its core retail business.”

Since Walgreen introduced Balance Rewards in September 2012, it has not disclosed detailed metrics showing the program’s impact on customer behavior.  To understand how well the company is implementing the promotions important to Balance Reward’s success, researchers surveyed stores for a basket of common health and household items advertised in the company’s circular and online, sales that now require membership in Balance Rewards.

One key measure of performance has suffered since the loyalty program was introduced eight months ago: Walgreen’s front-end, or non-prescription, sales have dropped for comparable stores.  This decline comes amidst Walgreen’s largest marketing campaign ever, announcing Balance Rewards’ launch, and as its competitors experience front-end sales growth.

Retailers lose sales 40 percent of the time when customers do not find an item on hand, causing significant lost sales ever year.

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Walgreen Strategy Watch (www.WalgreenStrategyWatch.org) is an independent corporate transparency initiative of the Change to Win labor federation.  Members of CtW affiliates participate in Taft-Hartley plans with over $200 billion in assets, including ownership of Walgreen common stock.  CtW’s affiliates represent drugstore workers, including some of those employed by the Walgreen Company.  Walgreen Strategy Watch shares information and analysis with various stakeholders.