America’s Greatest Retailer



             I have been in love with retailing since I was a kid. My mother used to drag me through the halls of the big department stores in Indianapolis (L.S. Ayres, William H. Block, H.P. Wasson) and Chicago (Marshall Field, Carson Pirie Scott, Weiboldt’s, Goldblatt’s).  I was amazed by all the cool “stuff” and diverse people. In the 8th grade, my term paper was the life story of Marshall Field. By about 9th or 10th grade I was showing up at department stores, asking to interview the manager or President. 

            In college I stood at the base of the escalators in Field’s and Carson’s rival State Street stores, counting how many customers had shopping bags – what share of the people actually spent money – in both that store and in the competing store. I found that there were a lot more Field’s bags at Carson’s than the other way around. Back then, we called what Field’s had “dominance.” I have pulled more all-nighters studying retail data than doing any other single thing, I think – maybe that’s not something I should brag about.
            I went on to work two years picking retail stocks on Wall Street, two years as a book and sporting goods buyer for the great Federated Department Stores, three years in financial and strategic planning and mergers and acquisitions for the May Department Stores Company, then two years in real estate and shopping center development and marketing for May. Finally I started two retail chains.   I’ve done a fair amount of consulting and a lot of speaking and teaching about retailing; I even served for five years on the Board of Directors of Austin-based Whole Foods Market, one of the best merchants of our generation. 
            I still spend as much of my waking time as possible in retail stores. That’s a long way of saying I just love this business. I am fascinated by what makes it tick. By its history and evolution. It is soooooo competitive, it can be sooooo low margin, yet when you hit it right, it’s like magic. Some of the greatest companies in the world have been built in retailing, and some of the biggest fortunes created in it. 
            Great retailer leaders are what I call “merchants,” where I define a merchant as someone who loves the products they sell and loves their customers. They share that love. I think people with that mindset also run many of the most successful non-retail companies. 172-year-old Procter & Gamble and its chief Mr. Lafley immediately come to mind.
            Almost all the retailers I have met are great people. On this site you’ll “hear” me talk about my heroes and the lessons we can learn from them: especially the greatest merchants of the 20th century like Julius Rosenwald, Sol Price, Sam Walton, and Charles Lazarus, among many others.
            I believe there are few industries which do so much good for so many people, from creating opportunities for employees of all genders, colors and creeds to learn, grow, and lead; to bringing new concepts and products to customers and saving them money. Historian Neil Harris will tell you that between the Civil War and World War II, the main ways Americans were introduced to new ideas like art deco design were museums, world’s fairs, and department stores. Filene’s of Boston played a key role in the creation of public broadcasting. Macy’s made sure New Yorkers had access to fresh milk. Retailing is where “the rubber meets the road” – where our entire productive economic structure meets the people with all the power – consumers. No industry contains more lessons for leaders about how to serve, compete, survive, and even prosper.
            The bottom line here is that you can expect me to write a fair amount about retailing on I plan to talk at some length about segments ranging from department stores to discount stores, from supermarkets to convenience stores, and specialty stores from chains to independents. But in this quick snapshot, I just want to make a few quick points about where US retailing stands today, and who I think the best company is. This is not an in-depth analysis, just a quick answer to that question I am often asked, “Who do you like today?” My answer has implications for job-seekers, people who want to learn retailing from the best, competitors, suppliers, shopping center developers, urban planners, and investors.
            In future posts, I’ll talk about my other retail faves, and about online retailers (like Amazon), which I consider somewhat different animals from bricks and mortar retailers.
            I’ll start by saying I don’t think the current economic mess means very much. I realize that’s a pretty strong statement. Certainly hundreds of thousands of retail jobs and billions of investment dollars have been lost – but only temporarily. I do not think there is a single major retailer who is going to close up or go broke because of this situation that would not have gone away anyway. All hard times do is speed up the demise of the weak. We have recently seen the demise of Circuit City and Linens and Things – a natural shakeout among “superstores” or “category killers” that I predicted 20 years ago (although I would not have dared pick which companies would prevail, at that early stage of superstore development). These companies were almost certainly “goners” sooner or later, with or without the recession.
            Recessions present an opportunity for strong companies to solidify their leadership. Back in its glory days, Sears always increased advertising as a percent of sales during hard times, to make sure they came out stronger at the end of the cycle. Of course, if we really went into a true depression – which almost no one now seems to expect – I might change my tune a bit, but even then I believe the companies at the very top of my list would survive. 
            As a corollary to this mindset, I have not studied every monthly sales and quarterly earnings number to look for any secrets – because I don’t think you will find much true information there, just data. Better to hang out in the stores. So who is at the top of my list?
            I have to give my number one ranking to the Walgreen Company. Here is a company that is perfectly positioned to benefit from an aging baby boom and rising demand for health products and services – trends that will be with us for several decades to come. A company with just over a billion dollars of long term debt – equal to only 10% or so of their shareholders’ equity. A company with almost 7,000 stores in 49 states which generated $59 billion in sales last year. 
            And those stores are modern and in many cases on the best corner locations in America – what retail real estate people call “at the corner of Main and Main” or just “good dirt.” Perhaps the strongest leading indication of a booming neighborhood is the opening of a Walgreen’s. Sometimes, like in Dripping Springs, Texas near my home – Walgreen’s comes to town even before the big supermarkets come in.
            Most importantly, they are outstanding merchants. Not Neiman-Marcus or Prada type merchants, but predictable and seemingly boring “are you in stock on my brand of vitamin” merchants. In retailing, doing your job well usually trumps fads and flash in the long run. Over and over, the company has put the customer first. Giving up on their longstanding and profitable idea to have customers hang out in the store waiting on prescriptions, they built drive-thrus to make it easier for busy moms, disabled people, and sick people.  
            With their flashing red roadside signs, they are particularly adept at “micro-marketing” to the current weather and those living in the immediate neighborhood. Long hours and convenient locations coupled with an increasing array of everyday convenience items from batteries to potato chips make them the “new Woolworth’s” and a capable competitor to our great American convenience store industry. No retailer grasps the importance of convenience – perhaps the most underestimated factor in retail success – any better than Walgreen’s does.
            As a student of competition, I should state that because of acquisitions, long-time competitor CVS Caremark is now actually a larger company, and also a very good merchant. But CVS carries over $8 billion in debt. Even given low interest rates these days, that level of indebtedness makes me a bit nervous in these tough times.
            As a student of history, I really like the fact that Walgreen’s is 108 years old, and that Charles Walgreen III is still on the board. The best economics teacher I ever had, Nobel-winner George Stigler, was the Walgreen Professor at the University of Chicago. That almost didn’t happen: old man Walgreen yanked his niece out of the University in the 1930s because he was afraid they might be a bunch of Communists, before being romanced back into supporting the school. Like almost everywhere else on the globe outside North Korea and Cuba, the Capitalists (like Stigler) outlasted the Communists on campus by proving Communist philosophies hollow at best (and at worst, deadly to tens of millions of people). 
            I also recall that when I was doing that acquisition work in the 1970s for the May Company, we could have bought the whole Walgreen Company for a fraction of May’s value – that rare situation called an “anti-dilutive” acquisition. I think Walgreen’s market value was under $500 million – compared with about $30 billion today.  But back then no one wanted the dowdy old company, a has-been well past its peak, with its dirty old stores and inability to compete with the hot drug store companies like Dart Drug, Revco, Rite Aid, Long’s, and Jack Eckerd. Today many of those enterprises, including the May Company, have been gobbled up. But Walgreen’s management – with the support of the Walgreen family – brought this great old company back to life, closed down all those dumpy stores and built new ones.   I can assure you their rise to greatness did not happen overnight, and required massive amounts of courage and vision – from the board room to the stock room.
            The drug store industry is a great example of resilience, of turning lemons into lemonade. We often forget that suburban drug stores almost always used to be in-line in neighborhood strip shopping centers next to supermarkets, which were the “anchor” stores drawing most of the traffic to the centers. That all changed when the supermarkets decided they could run pharmacies, make the extra profit, and do away with drug stores. Soon the supermarkets, as the anchors in ultimate control (though not usually ownership) of the neighborhood shopping center industry, effectively banned drug stores from the centers. Many thought the homeless drug stores would die off. But, as often happens, the silver lining came out, showing the drug stores that they actually did more business when forced to stand on their own with their own parking lot, if they ran a great store.
            With these facts in mind, I see nothing in the current decline that should derail the long-term vision of Walgreen’s. They have laid an outstanding foundation for the company’s future, and when the economy comes back they will likely be in the catbird seat. With the stock off about 40% from its five-year high and no reduction in its fundamentals, I would also have to think this is one of the best long-term investments you could make.
            In future posts, I’ll talk about some of my other favorite retailers, perhaps starting with perennial picks Target, Bed Bath & Beyond, Wegman’s, Sheetz, and Lowe’s, as well as other giants from Wal-mart to Sears and Macy’s.


  1. I think the measurement of a company is very subjective. Gary highlights some great points with Walgreens. But I view Walgreens from a different perspective. In the past year they have settled with Attorney Generals from multiple states on improper Medicaid billing and altering prescriptions without physician approval in order to maximize profits. I draw a line when it comes to any company that in my opinion does not compete fairly. I now get my prescriptions elsewhere.

  2. HI Bill,
    The following October, 2008 mention was the best information I could find on this issue upon a quick google of the subject. I am not sure what went on and how to assess it. Gary

    Pharmacy chain store giant Walgreens has agreed to pay the U.S. and four additional states, $9.9 million to resolve allegations that it falsely billed the Medicaid program. According to the allegations, Walgreen’s submitted claims to Medicaid agencies in four states for prescriptions dispensed to persons with both Medicaid and private third-party insurance. Walgreens allegedly turned around and charged the four state Medicaid programs the difference between what privacy insurers paid and what the programs would have paid without private insurers.

    The feds decided that this was a false billing situation, concluding that Walgreens was only entitled to what it would have gotten if the claims were submitted to the private insurer, probably a co-pay amount. Since Walgreens submitted claims to Medicaid that exceeded co-pay amounts, they were out of line, officials said.

  3. The 1970s? Hey Charlie, I don’t ever remember a time when the wealthy few didn’t play the music and the poor masses didn’t dance. However, the wealth divide today has never been worse. It’s even worse than before the crash of 1929. Do you remember what happened in the American colonies in 1776? Do you remember what happened in France in 1789? Do you remember what happened in Russia in 1917? Those ugly and bloody events, just to name a few, were a result of poor repressed people living under wealthy oligarchies and finally reaching a breaking point. Like it or not, America today is ruled by a 1 percent oligarchy. Just 1 percent of the population holds almost all of the wealth. These 1 percent also own the U.S. Congress. When the 99 percent have had enough, things will change. We are seeing small signs of it already. Today’s Occupy marches are relatively small and peaceful at the moment. It started out like that in the colonies before 1776. The Occupy movement before 1776 was very small and relatively quiet. Before 1776, most American colonists were loyal to the Crown of England. It was only the very few who were radicals back then. Who knows? Things change. Things always change.