More than 3,000 stores of Walgreen Co. (WAG) across the US, recently commenced same-day pick up service for the company’s massively popular photo gifts. These products include classic photo books, calendars, folded cards, holiday cards and other personalized items. With online photo sites forcing buyers to wait for a week to get custom photo gifts delivered, Walgreen expects this new service to be accretive in terms of time saving.
Walgreen’s new photo technology and printing systems produce high-resolution, high-color prints at high speeds, thus allowing photo technicians to develop photo gifts within an hour. Based on the August 2010 study by InfoTrends, Inc., photo gifts sales are expected to grow nearly 20% through 2014.
Headquartered in Illinois, Walgreen is the largest national retail pharmacy chain in terms of revenue and profitability. The company’s strategy of store expansion coupled with operating acumen and fiscal conservatism has made the company a leader in the retail drug store industry. The company’s store base has increased consistently with the primary focus on building new stores in high-traffic locations rather than acquiring.
However, presently, Walgreen is focusing more on including a wide range of services to enhance customer satisfaction. Other than this new same-day pick up service, the company has also added new store brand ‘Nice!’ in August this year under which, over 400 high quality grocery and household products will be available at 30% lower prices compared to other national brands. We expect all these strategic development to strengthen the company’s business going forward.
However, we are concerned based on the impact of the current high unemployment levels and lower discretionary spending. Moreover, the company faces intense competition from major players like CVS Caremark (CVS) and Rite Aid Corporation (RAD).
Walgreen currently retains a Zacks #3 Rank (short-term Hold rating), which also corresponds to our Neutral recommendation on the stock over the long term.
