Chains utilize Web sites as an aid, rather than business model

Drug Store News, July 23, 2001 by Liz Parks

Internet retailing has not proven to be a passing fad, but neither has it turned out to be the blockbuster that Wall Street and e-commerce analysts once predicted.

According to Forrester Research, total sales for online consumer healthcare products increased 130 percent last year to $1 billion, or roughly 0.5 percent of all healthcare sales. Liz Boehm, a healthcare analyst at Cambridge, Mass.-based Forrester Research, projects that by the end of 2001, online healthcare sales will hit $2.2 billion, about 1 percent of total healthcare sales. Healthcare sales include prescriptions, OTC health products, nutrition items and products aimed at improving consumer's s "well-being." By 2004, Boehm predicts that online sales of healthcare items will reach $21.5 billion, about 7.7 percent of the total market.

According to analysts and retailers, it is not the pure-play online drug stores that pioneered e-healthcare that are driving growth. It is the brick-and-click drug chains, particularly Walgreens.com and CVS.com, who were the Johnny-come-lately players in the e-retailing channel that are enjoying the biggest online successes.

Indeed, PlanetRx.com and Rx.com, two of the earliest pure-play online pharmacies, are both gone, unable to generate the cash needed to fund their operations. Soma.com was acquired soon after its February 1999 launch by CVS and merged with CVS.com. Drugstore.com, the last remaining of the big-name pure e-retailers to roll out in 1999, projects it will operate in the black by 2004, but even drugstore.com has seen its stock decline precipitously over the past 18 months.

Making it click

At the same time, Walgreens, CVS, Rite Aid, Eckerd and Longs are reporting satisfactory results from their Web sites. Mike DeAngelis, a CYS spokesman, said CVS.com will break even in 2002, two years earlier than drugstore.com is expected to break even.

"We're very pleased with the performance of CVS.com," said DeAngelis. "We're also very pleased with the way CVS.com has been integrated with our retail locations. In markets in which CVS.com customers live or work near CYS stores, 90 percent of the customers who shop CVS.com pick up their purchases in the stores."

At Walgreens, spokesman Michael Polzin noted that the chain sees its pharmacy patients in particular using some of the advanced features of walgreens.com. "It helps tremendously in building customer loyalty by giving our customers additional reasons to shop our brand," he said.

"Our vision hasn't changed much through all the ups and downs of the dot-com world," Polzin said. "We always viewed our online store as a way to enhance communications with our customers and our patients. It's a way to provide more personalized information to them. That's been our focus from the start."

At Walgreens, the primary focus, said Polzin, is on the pharmacy customers. Frontend products, which were added to the site last October, are offered "as a convenience for that segment of the customer base that wants to shop online."

Jody Cook, a spokeswoman for Rite Aid, which recently launched a redesigned version of its Web site, noted that some of the new and expanded programs on the chain's Web site have been very successful. For example, between 40 percent and 50 percent of all Rite Aid's coupon redemptions are now done online, and Cook said that service has grown steadily in popularity. (Rite Aid operates its Web site in a partnership with drugstore.com.)

At Longs Drug, spokeswoman Nancy Cockerham, said the chain is pleased with its recent site redesign, which added more than 8,000 health, wellness and beauty care products to the existing prescription services. 'While it's very early in the process, we're seeing some encouraging signs of a growing number of prescription customers who are transferring their prescriptions from our competitors to Longs via the Web," she said. "Another interesting fact is that roughly 25 percent of the registrants on our site are from outside the geographic markets served by Longs today."

Added convenience at Longs

At Longs, Cockerham said the chain's Web site was designed to give consumers greater convenience and shopping flexibility. "Providing both prescription services and a robust product offering via the Internet enhances our customer service and keeps pace with changing customer dynamics. Customers can shop longs.com at their convenience, 24 hours a day. And that experience may supplement their shopping in our stores or it may be their primary contact with us."

At Forrester, Boehm noted that although some online drug store companies are falling or have fallen out, of the healthcare segment of e-commerce, the marketplace itself is still growing. "There were just too many players, both in e-commerce and in e-healthcare, so it's not surprising that there have been failures or that only a few players are now emerging as dominant."

Boehm said the trend today is for companies, such as Walgreens and CVS, that have a strong brand identity and a large network of brick-and-mortar stores to do well online. "Walgreens.com and CVS.com are both doing well. I'm particularly impressed with Walgreens as a slow but steady mover into online retailing. It understands that the Web is an incremental channel and not a new business model. It also has done an excellent job integrating the back-end and front-end online and off-line businesses so that, from a customer perspective, they are dealing with one company, whether they shop the stores or the Web site."