Dec 14 2018

When it comes to Pharmacy Configuration, Leave Room for Soap and Toothpaste

Although the typical pharmacy’s footprint has not changed over the years, expectations about how that space should be utilized have evolved dramatically.  Today’s pharmacies are likely to include larger, more comfortable waiting areas; designated spaces for immunization or blood pressure clinics; and private areas for patient counseling, among other things.

But with a finite amount of space with which to work, pharmacists must juggle competing needs.  Should a pharmacy eliminate front-end retail space in favor of creating a more comfortable waiting area?  Or would patients be better served by the convenience of an expanded inventory of non-medical items?  By including a refrigerated section full of dairy products and prepared foods, for example, or adding a “home care” section that stocked necessities including lightbulbs and simple tools?

CVS Health recently brought the issue to the forefront with a November 2018 announcement that going forward, the amount of store space devoted to retail sales would be reduced, in favor of an increased focus on medical services and health care products.  Speaking at the Forbes Healthcare Summit, CEO Larry Merlo said he envisions the typical CVS pharmacy “evolving from not just a store that happens to have a pharmacy and products” into “more of a health care destination.”

While CVS stores will still stock an array of health, beauty and sundry products, Merlo suggests as much as “20 percent of retail space could be repurposed to expand [in-store clinics], and offer services to help consumers understand their insurance benefits and learn about nutrition.”

This decision will presumably work in CVS’s interests since, USA Today reports, retail sales are increasingly less important to the drug store chain, “as pharmacy prescription sales were more than three times retail product sales” during the first nine months of 2018.

But this model may not work for smaller, independent pharmacies that do rely on non-prescription, “front-end sales.”  According to research by McKesson, front-end sales can have a much higher profit margin than prescriptions.  “The gross margin on prescription sales may be about 23 percent or lower in an independent pharmacy,” the analysis found, while “the gross margin on front-end sales can be 38 percent.”

Within front-end sales, there are broad differences between top-selling items and laggards that tend to remain on the shelf.  According to Hamacher Resource Group, out of 23 categories of health, beauty and wellness products, “the top 11 categories provide 86.6 percent of top-line revenue.”  Those categories include:

  1. Diabetes Care
  2. Cold & Allergy
  3. Vitamins & Supplements
  4. Digestive Health
  5. Pain Relief
  6. Incontinence/HHC
  7. Skin Care
  8. Oral Care
  9. First Aid
  10. Eye & Ear Care
  11. Baby Care

Ultimately, a pharmacy must decide to allocate space – and stock items – based on its unique needs.  McKesson’s analysis highlighted one pharmacy owner in Lake Park, FL who restructured front-end offerings to get rid of low-selling items including stuffed animals and stationery, in favor of a mix of products including low-cost perfume and household products. As a result, front-end sales increased by 60 percent in just three months.  “Customers don’t buy just one of the dollar perfumes,” the owner said, “we sell a dozen at a time.”

With space at a premium in all pharmacies, it’s important for every square foot to be used wisely and efficiently.  To do so, a pharmacist must have good insight into patient requirements and preferences and strike the right balance between front-end sales and health care services.