U.S. brick-and-mortar retail is in crisis. This sentiment has been expressed to varying degrees in recent years as store closures and bankruptcies have piled up, but the current threat is much more immediate and pressing: The coronavirus outbreak has closed much of U.S. brick-and-mortar retail, and almost half the country has been told to stay at home. This has hit discretionary retailers especially hard.
Drug stores, like grocery retailers, are likely to remain a bright spot, as nondiscretionary demand is strong with anxious consumers stocking up on essentials. Even in a total lockdown, drug stores are likely to be exempt from enforced store closures.
Coresight Research is closely following major trends in drug stores, on both the supply and demand sides. On the supply side, major drug store retailers are stepping up efforts to make testing and health care more accessible. On the demand side, we have seen consumer demand for drug store categories jump, and our proprietary consumer survey data suggests more sales will head online as the coronavirus crisis continues.
Drug Store Chains Step Up
The nation’s two largest drug store chains are playing an important role in making coronavirus testing more accessible. CVS and Walgreens have rolled out new policies to relieve patients of the high medical costs for testing.
CVS-owned Aetna has waived co-pays for doctor-ordered coronavirus-related testing and has offered $0 co-pay telemedicine visits, available in 40 states from March 6. The drug store chain has also waived prescription delivery fees from March 9 so customers don’t have to come into the pharmacy.
Walgreens has offered free delivery on all eligible prescriptions since March 13. In addition, consumers in 14 U.S. cities can order a wide range of health, wellness and other convenience products online for home delivery, fulfilled by Postmates courier services.
In addition, both CVS and Walgreens announced on March 13 that they are working with the Centers for Medicare and Medicaid Services and the Centers for Disease Control and Prevention to increase coronavirus testing, setting up testing in designated areas of selected drug store parking lots. With the companies’ massive store fleets of around 10,000 each, this could make a meaningful impact in the country’s ability to roll out large-scale testing.
Rite Aid, the third-largest U.S. retail pharmacy chain, said on March 16 that its stores are working with the government to offer drive-through testing and additional clinical services in some of its more than 2,400 locations.
Demand: Consumers Stockpile, Panic Buy — Then Head Online
As worried U.S. shoppers have been stocking up on essentials, demand for drug store categories has jumped. A Coresight Research consumer survey from March 17 to March 18 found that 26% of all respondents are now buying more health products, and 29% are buying more personal care or hygiene products due to the virus outbreak.
However, even as in-store demand has held steady, drug stores must follow consumers where they are heading: online. A Coresight Research mid-March survey found fully two-thirds of all respondents expect to make more purchases online if the outbreak continues.
Among those expecting to buy more online, demand for drug store essentials remains strong: For example, around six in 10 anticipate buying more health products online while seven in 10 expect to buy more personal care or hygiene products online.
Four Recommendations for Drug Store Retailers
These are our recommendations to drug store retailers looking to navigate the increasingly challenging environment:
- Don’t rely on panicking shoppers buying in-store to sustain sales: Prepare for increasing online demand. This is important because shoppers may retain habits such as buying online even after the coronavirus crisis ends and, if they do, retailers want their sites to be shoppers’ first port of call.
- Pull all levers to increase online capacity, including working with third-party service providers and ramping up at-store pickup services.
- Where capabilities and capacity allow, ramp up health care and pharmacy provision, provided at cost or at reduced rates to drive long-term loyalty: Don’t appear to be capitalizing on a crisis.
- Consider rationalizing ranges to optimize shelf-space and replenishment capacity, and in so doing, maximize availability: Worried shoppers are looking for essentials, not endless choice.
Deborah Weinswig is founder and chief executive officer of Coresight Research.