Fred's New Convenience Strategy Shuns Digital

May 29, 2014

Fred's wants to be what it calls "the convenient small box store of choice" and to achieve that goal, it has embarked on a two-pronged strategy focused on general merchandise and pharmacy.

Neither business is new for Fred's, an operator of 704 stores throughout the Southeast, but the need for a new approach to serving shoppers in the digital age was heightened after the company reported weak sales and profits for the first quarter ended May 3.  Sales declined to $498.3 million from $501.5 million and same store sales dropped 1.9% on top of a prior year decline of 1.3%.  The company's first quarter profits of $6.1 million, or 17 cents a share, were roughly half the $11.4 million, or 31 cents a share, profit the company earned the prior year.

There were some legitimate reasons for the weakness, as have been cited by numerous other retailers, but Fred's reasons went beyond the unusually cold weather and a tepid economy to include competitive promotions, issues related to the timing of tax credits and what it referred to as extraordinary inflationary pressures on generic drugs combined with third-party payers reluctant to increase reimbursement rates.

"Realizing that customers' shopping habits are changing faster than ever, we recognize that we need to adapt to these changes and meet customers' needs on their terms," said Fred's CEO Bruce Efird.  "Fred's new strategy takes into consideration the ongoing emergence of internet shopping.  This trend continues to reduce trips to conventinal brick-and-mortar stores, but, at the same time, potentially expands the number of convenience, need-based shopping trips.  We will be marketing the diverse categories we carry compared with other small box competitors to emphasize convenience, using a new marketing and signage strategy."

Rather than add e-commerce capabilities to its website, Efird said the front end of Fred's stores will be re-merchandised with power displays and pallets, along with a faster checkout configuration, all focused on ease of shopping and designed to emphasize the advantages of shopping at Fred's 15,000 sq. ft. stores.  The changes are meant to better position Fred's to serve more of the need-based categories and provide customers with an easier and more convenient shopping experience.

"We are now engaged in a robust reworking of our current pharmacy distribution agreement, with benefits expected to begin in the second half of 2014 and with the full impact anticipated in 2015," Efird said.  "We will be making the general merchandising changes over the balance of this year, which include cleaning out unproductive SKUs and exiting categories that do not align with Fred's enlarged convenience model.  The costs of these branding, marketing and merchandising strategies will be finalized by the end of the second quarter."

The company expects to fully implement a new marketing campaign by mid-July with further plans calling for the new front end, adjacencies and fixtures to be substantially completed early in the fourth quarter.

Source: Retailing Today