Any trickle-down of an improving economy hasn't trickled down to Fred's consumer base, Bruce Efird, Fred's CEO, told analysts Tuesday morning in discussing the discounter's third-quarter results. "During the third quarter we continue to see generally weak economic conditions throughout the Southeast which are clearly weighing heavily on our customers and influencing how they shop for their basic needs," he said. "It's more evident that things are not getting better for our core customers."
Fred's is preparing for a highly promotional fourth quarter as retailers fight it out for the customer's holiday dollar. "We're seeing our largest competitors ramping up advertising at record rates to capture traffic and anticipate fourth quarter holiday promotional activity to intensify to levels even greater than last year," Efird said, especially as more retailers attempt to turn back the clocks on Black Friday with deals on Thanksgiving Day.
But pharmacy continues to be seen as a growth catalyst for the company — 36.4% of Fred's sales are comprised of prescription medicines, the Memphis-based retailer stated. In the past quarter Fred's opened two 8,000 square-foot GetWell Drug and Dollar concept stores with four more pilot openings planned by year's end. One of the stores is located in Middleton, Tenn., 80 miles east of Memphis.
"The thesis behind it is to drive a growth vehicle in the future for smaller communities where we have either an Xpress Pharmacy or an opportunity to buy a pharmacy, and the community's not large enough to support the 16,000 square-foot Fred's store," Efird said. "We're nine weeks into this. What we've seen thus far, we're pleased with the overall performance of the total combination of general merchandise and pharmacy."
The smaller footprint will serve as Fred's growth engine going forward.
Fred's has also realized its share of former Walgreens patients out of that retailer's now-ended dispute with Express Scripts. "We've seen a nice lift in our script comps … and to date have not really seen any loss at all in that [Express Scripts] patient demographic," commented Rick Chambers, Fred's EVP pharmacy operations.
"Approximately 38% of our pharmacies overlap with a Walgreens pharmacy," Efird added.
Fred's also spoke to its recent specialty pharmacy partnership wit