As the sun sets on one of Europe’s largest retailers, Euromonitor International investigates the potential impact of Anton Schlecker’s impending liquidation and the parapharmacy/drugstore channel in the global consumer health market.
An unprecedented rise…
With the opening of his first eponymous drugstore in 1975, Anton Schlecker laid the cornerstone for one of Europe’s largest retailing empires. Schlecker’s first outlets in southwest Germany marked a small revolution within the notoriously stodgy German retailing landscape by providing consumer health and beauty and personal care products – hitherto available almost exclusively in chemists and pharmacies – at lower prices and in more convenient locations.
Over the course of the next three decades, Schlecker would build one of the largest and densest networks of stores in the world. Schlecker’s early growth was fuelled in large part by an undying commitment to cost-savings. Manned in large part by “Schlecker-Frauen” – mostly middle-aged women in white and blue uniforms – the stores were notoriously Spartan in their design. With drab interiors more closely resembling a warehouse than a retail outlet, the product selection was limited, the prices dirt cheap, and the small outlets crammed and usually understaffed – some of the smallest locations were only a few hundred square meters and were staffed by a single employee.
Despite these obvious shortcomings, Schlecker developed into a retailing powerhouse throughout Europe. At its height in 2007, the privately held company operated over 14,000 outlets in 17 countries. Its impact on consumer health in Europe was significant. In Germany, Europe’s single-largest consumer health market, the company accounted for 63% of total parapharmacy/drugstore outlets and 25% of all sales (excluding sales tax) through the channel in 2011. As the channel accounts for over 20% of all German consumer health sales, Schlecker was one of the industry’s most significant points of sale.
And an unprecedented fall
However, after decades of rapid expansion, the company announced on January 20, 2012, that it would be entering structured bankruptcy. While the announcement came as a surprise to some – including many of Schlecker’s over 30,000 employees – the announcement was the natural conclusion to the long, downward spiral the company had entered by the mid-1990’s.
Despite its impressive history of growth, Schlecker never developed a truly sustainable management structure. Anton Schlecker, the reclusive company patriarch whose photo hung in every outlet, maintained an iron grip on the company’s operations, despite a serious disconnect with consumers and general market trends. While direct competitors such as the Dirk Rossman KG, dm-drogerie markt GmbH & Co KG, and Müller Ltd & Co KG pushed forth with larger stores, richer product assortments, and modern, open designs, Schlecker maintained its small, barebones store model and concentrated on revenue growth through outlet expansion, rather than fewer but higher revenue outlets. By some estimates, per store revenue for Schlecker was one-fifth or less than its larger competitors. These smaller outlets couldn’t generate the volume necessary to keep logistics costs in check, which, spread across a network of 14,000 stores, eventually eroded Schlecker’s once-significant competitive edge in pricing. As the archetype for the Billigladen (“cheap store”) lost its pricing appeal, consumers began to abandon the retailer en masse. Between 2006 and 2012, Schlecker lost as many as six million customers (according to the German business daily Handelsblatt). A growing mistrust also contributed to customer losses, as the company faced a series of public relations debacles on account of its questionable labour practices. Rumours of firing employees, only to rehire them at lower rates through sub-corporations, were joined by several lawsuits throughout the 1990’s and 2000’s for misleading employees about their employment status and requisite pay schedules.
In 2011, the company began a broad-scale redesign of its stores, featuring larger footprints, higher-quality products, larger assortments, and more customer friendly interior design, as well as a media campaign highlighting its new labour best practices. However, the initiative proved to be too little, too late and by June 1, 2012, the company had reached the end of the line. In Berlin, Schlecker’s creditors voted to liquidate the firm, after the last remaining takeover offer was rejected as financially untenable. Though the firm’s foreign holdings and the sub-chains Schlecker XL and Ihr Platz are likely to carry on under new management, Schlecker’s domestic network will be shuttered after existing stocks are sold off.
A new model for a major channel
Accounting for over 22% of global retail value sales in 2011, parapharmacies/drugstores constitute the second-largest distribution channel in consumer health. Investments in more customer-centric stores boosted the channel during the review period (2006-2011), during which it was one of only a handful of store-based channels to grow its share of global distribution. As chains like Rossman and Müller in Germany and Walgreens in the United States have shown, creating a better in-store experience is essential to attracting consumers in the important parapharmacy/drugstore channel.
One example of how leading retailers are adopting customer-friendly store design to drive foot traffic and sales is Walgreen Co. In October 2011, Walgreen, the world’s largest parapharmacy/drugstore chain, unveiled plans for its new “wellness experience” platform. The plan – based loosely on the sleek store designs of its recent acquisition Duane Reade Inc, a trendy New York City chain – features important design upgrades to new and existing stores, including the company’s new flagship in Chicago. The “wellness experience” includes a large array of branded and private label OTC and vitamin and dietary supplement products, as well as a substantially larger assortment of weight management and sports nutrition products than standard Walgreens stores. The pharmacy experience has also been substantially upgraded. In addition to private consultation rooms, where patients can discuss and receive advice on medications, the pharmacist has been brought out onto the sales floor, enabling easier and more personal interaction. The new stores also feature a Walgreens “Health Guide”, who is specially trained to answer product and service questions, and a larger array of fresh foods and beauty products. In general, the stores feature a more open, modern design (including higher ceilings, more natural lighting, and wider aisles) and a larger array of higher quality products. The company believes its larger footprint and wider product assortment will produce higher customer volumes, which will help maintain the expected low prices.
Sales Floor of Walgreen’s New Chicago Flagship
Walgreen’s New Open Pharmacy Layout
As parapharmacies/drugstores continue to face pressure from increasingly sophisticated consumers with greater access to alternative channels (such as internet retailing and warehouse clubs), retailers will need to increase investment in a more pleasant and exciting shopping experience to protect their significant stake in the consumer health industry. As the importance of the parapharmacy/drugstore channel in consumer health grows, Euromonitor International will continue to monitor and report on all relevant developments.