In-Store Clinics Boost Wal-Mart's Health

By: edited by Marguerite Jordan Email
By: edited by Marguerite Jordan Email

June 6

In a few years, it could be just as common for a Wal-Mart shopper to head to the retailer for an allergy shot or a strep-throat test as it is to swing by for food or clothes.

After a pilot program, Wal-Mart Stores (WMT, news, msgs) has announced plans to open as many as 400 in-store health clinics in the next two to three years. That number could jump to 2,000 in five to seven years if current conditions persist.

With Wal-Mart facing sluggish U.S. sales growth, analysts said the clinics give the retailer a means to improve sales by keeping its base of lower-income shoppers in its stores longer and keeping them out of costly emergency rooms.

"The health-care crisis and the inflation associated with it creates a lot of problems for their customers," said Richard Hastings, senior retail analyst at Bernard Sands. "They (Wal-Mart) are extremely exposed to the lower-income population's economic woes."

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An estimated 46 million Americans lack health insurance, and, according to the National Coalition on Health Care, health-care spending constitutes about 16% of the U.S. economy.

With Americans trying to find cheaper health-care alternatives, Wal-Mart began testing in-store health clinics in September 2005, and it now has 76 clinics.

The retailer does not operate the clinics. Instead, it leases in-store space to outside operators. The clinics provide basic preventive and health services -- like cholesterol screenings or treatment for sore throats.

Squeezed by gas prices, housing bust
A routine visit costs $40 to $65, excluding insurance. That is less than a similar visit to a primary-care physician, which could run between $80 and $110, excluding insurance, while an emergency room visit could be at least $250, said Alicia Ledlie, senior director of Wal-Mart's health business development.

Ledlie said its in-store clinic operators found that more than half of the customers who used the clinics said they had no health insurance, and nearly 15% said they would have gone to an emergency room if the clinic was not there.

"That was the hypothesis, but to see that proven out in the data really, to us, felt like this was the right time to go forward in a bigger way," Ledlie said.

Hastings said keeping customers out of emergency rooms makes sense for Wal-Mart, whose lower-income shoppers are being squeezed by high gasoline prices and a slowing housing market. An unexpected emergency room trip could drain a shopper of dollars that would otherwise be spent at Wal-Mart, he said.

'1-stop shopping'
Ledlie said the clinics fit the idea of "one-stop shopping" -- a customer who has been treated for a sore throat can then fill a prescription at a Wal-Mart pharmacy and buy everything from chicken soup to cough drops before leaving.

"There's a number of health and wellness solutions throughout the store. How do we make sure customers are aware of them?" Ledlie said of the challenge Wal-Mart faces.

Hastings said incremental sales are crucial to Wal-Mart, where margins are compressed by the emphasis on low prices.

"It's all about conversion and marginal sales," he said. "Marginal sales are the backbone of the Wal-Mart system."

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But Wal-Mart is not the only retailer pursuing clinics.

CVS/Caremark (CVS, news, msgs) is adding hundreds of Minute Clinic locations this year, and Walgreen (WAG, news, msgs) has said it plans to have 250 health clinics operating in its drugstores by the end of August.

Standard & Poor's equity analyst Joseph Agnese said he favors having the clinics in drugstores because a Wal-Mart supercenter may be difficult to get to or be surrounded by a sprawling parking lot.

"If you are sick, you are going to choose the most convenient location," he said.

But Ledlie counters that argument, saying the top reason users cite for visiting a Wal-Mart clinic is convenience.

Wal-Mart Stores
Oppenheimer retail analyst Bernard Sosnick said Wal-Mart's success with its $4 generic prescription drug program could point to success with the clinics.

Wal-Mart began selling certain generic drugs for $4 per monthly prescription in September and by the end of November had extended the program to all of its pharmacies -- far ahead of schedule.

Sosnick said Wal-Mart could theoretically lease space to clinics at attractive rates so prices could remain low, but it would make up for the lower rent by increasing sales at its pharmacies or other departments.

Analysts said in-store health clinics are not necessarily an either/or proposition -- either they succeed at Wal-Mart or they succeed at drugstores.

"It's a big market, and there will be a place for each," Sosnick said.

Instead, analysts see Wal-Mart clinics mainly as an attempt by the retailer to sell more to its own customers over time.

"It should be accretive in three to five years," Hastings said. "This is an extremely long process."

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  • by Bog Location: Cairo on Jun 7, 2007 at 04:00 AM
    Sounds like a winner to me. Emergency rooms are expensive and time consuming to use and I use them only in times of an emergency when my doctor's office is closed.
  • by charlie Location: conroe, tx. on Jun 6, 2007 at 04:05 PM
    are they going to import the doctor's from China to.
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