November 1, 2010, 12:00 AM

Future-Focused

Mobile and the web help century-old retailer Walgreens stand up to stiff competition and get closer to today's consumer.

Lead Photo

An old-line retailer founded more than a century ago by a business-savvy, customer-greeting pharmacist, Walgreens is rolling into the future of multichannel retailing, where shoppers research, select and buy across many retail channels.

In the past year, the more than 7,500-store retail pharmacy chain has relaunched both its e-commerce and mobile commerce sites, launched new mobile phone apps, garnered more than half a million fans on Facebook, and introduced a 24/7 live chat service that lets online consumers communicate directly with pharmacists or other members of the pharmacy staff.

Walgreens, the brand name for Deerfield, Ill.-based Walgreen Co., is also building on other Internet-focused strategies including text-message marketing and social media connections. At the same time, it's increasing the 30% of its products that it sells exclusively on the web–wheelchairs, for example–and the number of delivery options it offers, including store pickup of web orders.

Walgreens stores, meanwhile, are playing their part in this multichannel strategy by showing store inventory online, featuring signs that promote the online channel's extended inventory, and prepping store staff to help shoppers use mobile phones to refill prescriptions or order products online.

Customer choice

"We're offering customers more reasons to come to us," says Sona Chawla, senior vice president of e-commerce and the retail chain's point person for its Internet-related initiatives. "We know that customers want choice, control and convenience, and when we give it to them, they engage more with us."

The company's multichannel strategy could apply to any retailer looking to please increasingly Internet-savvy consumers. But Walgreens isn't conducting an experiment for the benefit of other retailers–it is pursuing a multichannel strategy that's crucial to its long-term success as a retail pharmacy chain, experts say.

That future is threatened by the likes of giant retail chains like Wal-Mart Stores Inc. and Target Corp., each of which operates first-rate pharmacies within their large stores, as well as competition from smaller pharmacies in supermarket chains. And Walgreens also has a direct competitor in CVS Caremark, which operates more than 7,100 stores and has a strong web presence.

Walgreens and its competitors all aim to use their retail pharmacies–a relatively low-margin business in which prices are largely governed by health care programs–to build relationships with consumers who will then buy higher-margin cosmetics, over-the-counter health items and other products, says Brian Kilcourse, a former chief information officer for a pharmacy chain who is now managing partner at research and advisory firm Retail Systems Research LLC.

Competition is fierce. "It's one of the nastiest battles in retail," Kilcourse says.

Turning to the web

Seeing the battle that was shaping up, Walgreens recognized that it would have to use the Internet along with its strong store locations–nearly 75% of the U.S. population lives within five miles of a Walgreens store–to build a sustainable advantage.

It was in 2007 that Walgreens began to take a hard look at its ability to compete in the modern multichannel age and moved to put e-commerce at the center of its operations, Chawla says. "Walgreens was looking at e-commerce and said it was time to start really growing the e-commerce channel with other channels, and maintain our multichannel leadership," she says.

And Chawla, who is 43 years old, emerged as the natural person to take the helm of that strategy as an energized veteran who has more than 10 years of experience helping big consumer-facing companies leverage the power of the Internet. A former Accenture consultant to web pioneer Wells Fargo Bank, Chawla accepted the bank's offer to work for it full-time in 2000 to help integrate the web channel with its large branch network. Six years later, e-commerce trend-setter Dell Inc. recruited her to manage its global online business.

Then, in 2008, Walgreens called.

Despite already being in a top e-commerce position at one of the world's leading e-commerce companies, Chawla left Dell to join Walgreens to take part in what she saw as an exciting shift in retailing by a company with a history for innovation, she says. "It was a fascinating opportunity that I fell in love with."

Even before the Internet came into play, as Chawla learned, Walgreens had linked all of its retail pharmacies via satellite so customers could access their prescriptions at any Walgreens location. And when it launched its e-commerce web site in 1998, its store chain already featured a drive-up pharmacy that made it easier for customers to pick up online orders at stores. "Walgreens has a history of thinking clearly about multichannel," Chawla says. "They really got the concept of connecting the channels."

But by the middle of the current decade, Walgreens realized it had to do more. Directing a staff of professionals in her e-commerce department across marketing, merchandising and I.T teams, while also pulling in help from corporate teams as needed, Chawla is building a more coordinated strategy of integrating e-commerce, and now mobile commerce, with the retailer's widely distributed store chain.

Their challenge is to face some of the toughest names in retail.

Walgreens vs. Wal-Mart

"We're taking all the services we have and presenting them in a multichannel strategy," says Chawla in an interview at her downtown Chicago satellite office, where many members of her e-commerce team work. "As we grow our customer base, we'll establish ourselves in our customers' minds as a pharmacy, health and wellness destination."

One strength Walgreens has over Wal-Mart and Target, for example, is a deep management commitment to the pharmacy business, says Jim Okamura, managing partner of Okamura Consulting, who has advised Walgreens on its multichannel strategy and management structure.

"Walgreens has one of the strongest homogenous cultures I've ever seen," he says. "Its senior management team is loaded with 30-year veterans who have spent their whole career there, and many of them are pharmacists. I've never seen a company with such a strong, deeply ingrained culture."

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