Low H&BC margins force regional discounters to rethink mix, relocate cosmetics - health and beauty care products - Regionals

Discount Store News, August 15, 1994

The shelves at regional discount stores are no longer overflowing with sku after sku of health and beauty care products. In fact, these same chains have begun to de-emphasize commodity-oriented items and seek out niches and innovative approaches to differentiate themselves from the Big Three.

The competition continually grows fiercer as the national chains have slashed margins making it extremely difficult for the regionals to compete. Therefore, many regionals have chosen to simply maintain the category, stocking only the necessary merchandise, but not spending too much time and effort on it.

Jamesway did this in its new core/fringe merchandise strategy, which positions H&BC/cosmetics in its secondary core. This means that the chain will only maintain it, but not try to grow or expand the business.

Pamida also views H&BC as a maintenance category. According to company chairman Steve Fishman, H&BC is a big business but provides the Omaha, Neb.-based chain with low margins.

The big news at Pamida, though, is the influx of pharmacies in all of its future store openings. "Wherever possible, we are putting pharmacies in our stores," Fishman said.

Pharmacies are not new to the regionals. ShopKo has long been a leader in the pharmacy area with one in almost all of its 122 units. The chain devotes much expense each year to continually upgrading its systems and streamlining operations. As a result, the chain fills 58% more prescriptions per day than the average chain drugstore. In fact, the chain is testing a free prescription delivery service in several of its markets.

The need to differentiate is imperative in such a commodity-oriented category. In fact, many regionals have begun to carry only one or two skus of the staple products in favor of higher-margin items like cosmetics and fragrances.

"We've pruned our selection a lot; we were really hit hard. Sales are down noticeably, but margin dolars are up. We have a broad enough selection for most people but we just can't afford to keep these commodity products," said Horace Mashburn, dmm, H&BC, housewares and RTA at Rose's.

For example, Rose's decided to drop the 6.4-oz. tube of Crest toothpaste because the chain couldn't make any money on it. Instead, it stocked the 4.6-oz. and 8.2-oz. sizes since they hadn't been driven down as deep in price.

In a similar case, Jamesway has de-emphasized diapers, a surprising move since one of its core strategies is to attract mothers with children. However, management at the chain feels that it is all but impossible to beat Wal-Mart on many of these commodity driven items.

The only place that the regionals can successfully compete with Wal-Mart, Kmart and Target is through control labels and unique merchandising vehicles.

The Big Three are especially strong in this area with each devoting significant shelf space to their own brands. Regionals have followed suit, especially in the H&BC area, with many conducting on-shelf callouts of their labels vs. the national brand competitors.

The attribute regionals like most about control brands is that they become a destination purchase for the consumer, something that is not driven solely by price but also by product performance.

Merchandising also has helped to enhance the performance of the department.

In varying degrees the regionals have set out to create an exciting atmosphere in both the cosmetics and H&BC departments.

Some have chosen to break out the cosmetics department and position it at the front of the store adjacent to jewelry and apparel. This creates a synergy between all of the fashion-oriented categories while leaving H&BC closer to food and greeting cards.

Such a strategy seems to work for Bradlees and Caldor as each has given cosmetics a department store look with upgraded fixtures complete with mirrored shelving and a deep selection of the leading brands.

Bradlees has done an especially good job of featuring its products in updated merchandisers, which add a quality of customer service to the department. In its hair care section, for example, an Aussie Intermissions shelf talker helps consumers figure out which of the products to use.

At the chain's Woodbridge, N.J., store, an endcap complete with two eye charts, mirrors and a rounder of non-prescription reading glasses helps consumers determine which type of glasses to buy.

Bradlees also has the Savings Spot, a computer that dispenses coupons for a mix of national and control brand labels that can provide consumers with additional savings on purchases. Advertising from local businesses such as doctors and accountants are also included.

Advertising is a primary factor at Jamesway as the Secaucus, N.J.-based chain devotes entire coupon books to its H&BC business with savings on both national brands and its Kare control label products.

Jamesway's special purchase program, too, acts as a point of differentiation between it and the national chains as hundreds of closeout or odd lot items are available for $1, two for $3 and two for $5.