CVS homes in on healthcare while stores languish

Dive Brief:

CVS on Wednesday reported that first quarter net revenues rose 2.6% year over year to $45.7 billion, according to a company press release. Overall same-store sales in the quarter rose 5.8%, and pharmacy same-store sales rose 7.3%, driven mostly by an increase in prescription volumes.
Front store same-store sales rose 1.6% in Q1 compared to the year-ago period. Seasonal cough and cold over-the-counter sales accounted for about 70 basis points of improvement in a period of softer customer traffic, while having Easter in Q1 also gave the metric a boost, the company said.
Executives spent most of their conference call with analysts discussing the company's health care services and sales, noting that its proposed merger with health insurance company Aetna has garnered over 95% shareholder approval from both companies. The company is seeking regulatory approval from federal and state regulators on various aspects of the deal, they said, according to a Seeking Alpha transcript of the call.

Dive Insight:

CVS is squarely focused on moving forward in the market as a medical provider, aiming to "rethink and reinvent health care in our country," CEO Larry Merlo said on the call.

The retailer is particularly focused on treating people with chronic medical conditions and is planning a clinical trial of a home kidney dialysis treatment for people diagnosed with diabetes. If that sounds like front-of-the-store retail sales are taking a back seat, they apparently are, and it shows, according to GlobalData Retail Managing Director Neil Saunders.

"[T]he true retail part of CVS isn't delivering," Saunders said in comments emailed to Retail Dive. "As we have noted many times before, this is a major lost opportunity and one that CVS should remedy. Sadly, we see little sign of this happening, and the retail offer remains down-at-heel and dingy, with no flair or imagination."

The good news is that CVS is making an effort, as shown in its "Beauty in Real Life" campaign, which features unaltered photos in cosmetics displays. But the value of the campaign is undermined by the stores' surroundings, Saunders warned. "We applaud this initiative which is in line with the values of modern consumers, particularly younger ones," he said. "The irony of putting out marketing about feeling beautiful and then presenting the customer with a jumbled assortment of cosmetics in a sterile carpet-tiled store illuminated by yellow-tinged light from aging fluorescent bulbs seems to be lost on CVS."

In shirking its retail side, CVS could be hurting its wider aims. "CVS needs to make more effort with retail. This is not just to make up ground in sales terms, it is also because CVS wants to increase its influence in health services," Saunders said. "That requires good retail disciplines and will necessitate CVS to rethink the way it presents itself to shoppers."