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Cynthetiq · 09-22-2006, 10:47 AM

capitalism at it's finest, walmart makes the announcement, and Target follows suit. Walgreens and CVS says it won't impact sales.

Quote:

Drugstores scoff at Wal-Mart cheap drug plan
Analysts agree, noting that plan by world's biggest retailer to sell $4 generic drugs will not significantly impact leading chains Walgreen and CVS.
September 22 2006: 12:31 PM EDT
CHICAGO (Reuters) -- Wal-Mart Stores Inc.'s plan to sell some generic drugs for just $4 should not impact leading U.S. drugstores Walgreen Co. and CVS Corp. as much as initially feared, analysts said Friday.

Following the announcement from Wal-Mart (down $0.34 to $48.12, Charts) Thursday, shares of the two drugstore chains plunged.

The plan, which starts in the Tampa, Florida area Friday, "caused an overreaction" in Walgreen and CVS shares, Merrill Lynch analyst Patricia Baker wrote in a research note.

The action covers 291 drugs, a small fraction of the thousands of generic drugs sold at pharmacies. The drugs on Wal-Mart's list are "low-priced, low-profit, and low co-payment already," BB&T Capital Markets analyst Andrew Wolf said.

Target Corp. (down $0.07 to $54.32, Charts), the No. 2 U.S. discount retail chain, quickly matched Wal-Mart's pricing in the Tampa market.

Shares of CVS, which has the most drugstores in the United States, dropped nearly 8.4 percent Thursday; those in Walgreen, the largest drugstore chain by revenue, fell 7.3 percent.

Shares of both CVS (up $0.20 to $32.67, Charts) and Walgreen (up $0.18 to $46.46, Charts) both edged higher in Friday trading on the New York Stock Exchange.

Buying opportunity?
Several analysts called the pullback a buying opportunity.

"We strongly believe that Wal-Mart's strategy sounds worse than it really is," said John Heinbockel, who covers drugstores for Goldman Sachs.

Although generic medicines are cheaper, they are more profitable for pharmacies since the prices of branded drugs are tightly controlled by the major drug companies that manufacture and sell them.

Not everyone on Wall Street was bullish. JP Morgan analyst Stephen Chick downgraded Walgreen to "neutral" from "overweight." "This seems like a longer-term threat that extends beyond mere cash prescriptions," he told clients in a note.

BB&T's Wolf said that if Wal-Mart were to discount other generics, it "would likely have a major impact on the profitability of drugstores. However, we consider this unlikely, since it would also impact Wal-Mart earnings negatively, which yesterday's pricing move likely did not."

Baker said that customers who pay with cash, rather than through insurance, seem to be the most likely users of such a plan, and represent a small fraction of the chains' customers.

Late Thursday, CVS said that the drugs Wal-Mart plans to sell for $4 are already low-cost and that cash sales represent less than 0.5 percent of its total pharmacy sales.

Walgreen also said it does not think Wal-Mart's plan will have a significant impact. Nearly 95 percent of Walgreen's pharmacy patients have insurance coverage, so they just pay a co-pay. A Walgreen spokesman said the average co-pay for the medications on Wal-Mart's list is just over $5.

"The difference is not enough to change our patients' behavior," he said.

Reaction to Medicare
In some cases, the Wal-Mart plan could even cost more. Walgreen said it gets just over $3 on the 291 drugs on Wal-Mart's new plan from seniors on the Medicare Part D plan.

Baker said Wal-Mart's plan could be largely a reaction to the Medicare Part D drug plans now in effect.

"Those seniors that, as a result of gaining drug coverage under the plan, welcome some freedom of choice with respect to determination of where to fill their scripts, have or might transfer files to community pharmacy from mass merchants," she wrote. "[Wal-Mart] is over-indexed on uncovered Americans and has the most to lose in respect to a shrinking cash pay segment."

Baker said she finds the Canadian market more attractive in general due to a different regulatory environment.

"Those wishing to also avoid the headline risk in this particular issue could look to Shoppers Drug Mart, our favorite (North American) name in this space," Baker said.

Quote:

Originally Posted by aceventura3

Here are three Econ 101 questions that beg an answer.

1)Who does Walmart compete with, "mom an pop" or other large corporations?

2)Why do people work at Walmart if conditions are so bad?

3)If Walmart is a poor corporate citizen, why are communities allowing new stores to be built?

1. Walmart competes with both mom and pop, midsize, and other large coporations.

2. In some places walmart is the major employer and pays the most out of retail jobs.

3. There are places like NYC where Walmart is currently not welcome for many different reasons. The local community boards here are quite strong and can stop things like state liquor licenses to zoning code variances. People think that Walmart is far from New York City, but there is one in Secaucus, NJ just 3 miles from Midtown Manhattan.

Quote:

Originally Posted by The_Jazz

Without going into the kind of detail that would put my job at risk, I'll back this point up by saying that there is some fantastic technology at work here, and Walmart is basically forcing all of their suppliers to adopt it if they want to continue doing business. I work with numerous companies that make things sold by Walmart, and they all have to include this technology with every shipment. It allows Walmart to track every shipment and purchase and stay ahead of demand so that stores never run out of hot items - unless it's the new Tickle Me Elmo.

a great example of how they will save money via suppliers...

Quote:

Reduced packaging to save Wal-Mart $3.4 billion
No. 1 retailer says it will ask 60,000 suppliers to cut product packaging by 5 percent.
September 22 2006: 2:37 PM EDT

CHICAGO (Reuters) -- Wal-Mart Stores Inc., fresh from cutting the prices on generic prescription drugs, is taking on the packaging industry.

The world's largest retailer said on Friday it would push its suppliers to cut the amount of packaging used in products sold through the world's largest retailer by 5 percent under a five-year plan scheduled to begin in 2008.

The move would save the company $3.4 billion and prevent millions of pounds of trash from reaching landfills, Wal-Mart said, adding that the plan would also stop 667,000 metric tons of carbon dioxide from reaching the the atmosphere.

The move would also cut the amount spent on packaging in the supply chain by $10.98 billion overall, the company said. The retailer, which has 60,000 suppliers, said it would begin to "measure" its suppliers in 2008 and recognize them for using less packaging, utilizing more effective materials and sourcing the materials more efficiently.

Wal-Mart (down $0.18 to $48.28, Charts), which is often criticized for its labor and health-care practices and for driving smaller retailers out of business, on Thursday said it would cut the price of many generic prescription drugs to $4 in Florida and then to other states.

Wal-Mart shares were down 24 cents at $48.22 on Friday afternoon on the New York Stock Exchange.

Wal-Mart Stores Inc. said on Friday it would push its suppliers to cut the amount of packaging used in products sold through the world's largest retailer, a move the company said will save it $3.4 billion.

Target (up $0.14 to $54.53, Charts), which competes with Wal-Mart, was up slightly in afternoon trade on the New York Stock Exchange.