To stimulate customers' need to purchase amid a challenging macro-economic scenario, leading drug store retailor Walgreen (WAG) recently launched a complete customer loyalty program. This new program, 'Balance Rewards' which claims to be the largest consumer loyalty program in the U.S., aims to stimulate spending through points and rewards earned by customers. Officially starting on September 16, 2012, this program includes over 7,900 Walgreen and Duane Reade stores in the U.S. and offers multi-channel access to join the program. Earlier in August, Walgreen first announced its plan to introduce the loyalty card program. Accordingly, on September 6, the company started the enrollment for its Balance Rewards program. The company encouragingly noted that since then, over one million customers have already signed up for the program. According to the company, the three main benefits of this program are - it is easy to join, and instant points and endless rewards are made available.
Other players in this battle
We believe that Walgreen's focus on loyalty programs is necessary as its peers CVS Caremark (CVS) and Rite Aid Corporation (RAD) are also working toward the same goal. CVS Caremark's 'ExtraCare' loyalty program continues to remain a prime stimulus for over a decade (since its launch in 2001). This health card program offers discounts to eligible plan members on certain over-the-counter health care products sold in CVS pharmacy stores. Currently, with more than 68 million active cardholders, this program represents one of the largest and most successful retail loyalty programs in the U.S., helping CVS Caremark to build a stable customer base.
On the other hand, Rite Aid is doing well with its loyalty card program 'wellness+' that was launched in fiscal 2010 in four pilot markets. Based on the accumulated points from front-end and prescription purchases, this program provides many benefits to its loyalty cardholders. The company has been quite successful with this sales initiative so far. Earlier in August, it launched the new Load2Card feature for wellness+ members. As per the new plan, beginning September 2, wellness+ card holders have the privilege of getting their special reward points automatically loaded to their cards.
Under the present weak macroeconomic environment, unemployment remains considerably high and food and gas prices are on the rise. Increasing costs coupled with unemployment have made customers more value driven. Consequently, spending on discretionary items is affected. This situation has impacted same store sales growth. The drug retailers are also facing other headwinds such as pharmacy reimbursement pressure and front-end margin pressure, which may hinder gross margin expansion.
Amidst such a turbulent situation, we are encouraged with these retail stalwarts' efforts to negate the impact of discretionary spending. These companies are taking all the measures to boost customers' spending. The lucrative offers with reward points drive success in this regard.
Walgreen's sales results were disappointing for the month of August, 2012. However, it remains to be seen whether the company will benefit from the recent marketing initiatives. We remain 'Neutral' on the company along with CVS Caremark and Rite Aid with a Zacks # 3 Rank (Hold rating in the short term).