CVS Stores Are Failing to Bring In Customers

May 2, 2017, 2:58 PM UTC

CVS Health (CVS) is struggling mightily to get customers to come into its stores.

The company reported a 4.9% drop in comparable sales of general merchandise in its stores outside the pharmacy areas, products like toothbrush and household items, as soft customer traffic dented sales. The decline was part of a disappointing first-quarter earnings report by the company, including an 8.6% drop in profit.

CVS CEO Larry Merlo said in a statement that 2017 would be “a rebuilding year” and that CVS “won’t be satisfied until the company returns to sustainable, healthy earnings growth.”

Shares were down 3% in mid-morning trading, erasing $2.4 billion of CVS’ stock market value.

CVS, which has been ramping up its beauty and health products areas at hundreds of stores, has not succeeded in replacing sales lost to its decision to dump tobacco products three years ago. Meanwhile, rivals for general merchandise like Walgreens (WBA) and Target (TGT) have improved their own beauty areas, making it hard for CVS to compete.

What’s more, more and more customers are simply picking up prescriptions at the drive-through, making it tougher and tougher to entice them into stores, a big challenge for a company that raked in $81 billion in its stores last year.

The company last month announced a new look it will introduce at hundreds of stores that will include a much sharper focus on healthy items and a more engaging product presentation. And pharmacy same-store sales were pinched by more generic drugs, which lowered prices for prescriptions filled.

CVS’ Caremark pharmacy benefits management unit saw revenue rise 8.5% to $31.2 billion, in part driven by an 11% jump in pharmacy network claims.

At the new beauty sections being opened at 2,000 of 8,000 CVS stores, “trend wall” displays have been added to showcase new launches, make them stand out more within the store, and emphasize CVS’ exclusive brands. The druggist recently added an area to showcase Korean products to ride the surge in interest in skincare products from that country.

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