The Wall Street Journal wrote an extensive article on Walgreen’s move into high end cosmetics and skin care (Walgreen pretties up) without even hinting that Wal-Mart might be a prime reason behind it.
Gambling that customers will pay as much as $60 for exotic beauty products on a trip to the corner drugstore, Walgreen Co. is stocking up on European brands packed with ingredients like caviar and seaweed…Walgreen’s bet reflects widespread thinking in the beauty industry that department stores’ offerings have grown stale and that their customers can be poached.Walgreen’s high-profile experiment, dubbed the European Beauty Collection, tests whether Walgreens shoppers will pay $10 to $60 for creams, scrubs and lotions, some of which are sold in upscale department stores and spas in Europe.
Who would you rather compete with? Fuddy-duddy old department stores or Wal-Mart? The fact is that Walgreen can’t compete with Wal-Mart on price, so they need to find shoppers who don’t care about price. That’s pretty highly correlated with people who pay big bucks for products with silly ingredients like caviar. Offering exclusive product lines also makes it more difficult to make direct price comparisons with other stores.
Walgreen is well-positioned to compete with Wal-Mart and department stores on convenience, which is one reason they keep opening up new stores.