CVS 1999 Annual Report Download - page 11

9
1999 Annual Report
The high-margin photo business has been the
focus of substantial improvement efforts during
the past year, resulting in significant growth. In
1999, we more than doubled the number of one-
hour photo labs in our stores to 2,000 labs, and
project a total of 3,000 by the end of the year
2000. The investment is paying off handsomely,
with photo sales rising approximately 30 percent
in 1999 and gross margins in this category among
our highest. We are working in partnership with
Kodak to develop a photo services business plan
that will look well into the future, exploring such
possibilities as enhanced in-store and Web-based
digital photo services.
The CVS brand business is still another
category where innovation has brought reward.
We continue to introduce high-quality, excellent-
value private label products that aim to lift sales
of their entire category without cannibalizing the
sales of leading brand products. We added 270
new CVS brand products in 1999 to raise the total
number of products throughout the store to nearly
1,500. Our category focus for 2000 is cosmetics
and bath items, where we intend to introduce
superior quality products at affordable prices.
As a result of what we learned in integrating
Arbor into our stores, we reduced some non-core
departments to expand our seasonal offerings.
The results have been very encouraging, with
existing seasonal programs growing at twice the
rate of overall front store sales.
Real Estate Solutions
The cornerstone of our plan for long-term
growth is our capital commitment to increase
the number and improve the quality of our retail
locations. We are investing in achieving the
optimum in retail positioning for the future and
we are seeing promising results, all while we
continue to deliver solid financial performance
in the present.
For 1999 alone, we opened a record 433 new
CVS stores, including about 300 CVS relocations.
In addition, at year-end 1999, we had 12 ProCare
apothecaries open and another eight under
construction. We expect to open 400 to 450 new
number of one-hour photo labs to 2,000 labs, and project 3,000 by the end of the year 2000.
stores each year in the foreseeable future. To
achieve this measure of success, we formed CVS
Realty Co., a fully integrated captive development
company led by a dedicated team of real estate
professionals, affording CVS in-house expertise
and the ability to take a more active role in every
aspect of retail site development. This strategy,
in combination with the strong sales generated
by new stores, has enabled us to reduce our cost
by $4 to $5 per square foot and to continually
decrease our occupancy costs as a percent of sales.
Our real estate strategy involves capital
investment on several different fronts. First,
we are strengthening our position in existing
markets with new stores. With our market
research capabilities and our emphasis on
selectivity and quality, our real estate experts
continue to discover untapped opportunities
for new store locations where existing drug
outlets are inadequate to serve the population.
Additionally, we are building new stores in
new markets. We are the No. 1 provider
in 30 of the top 100 drugstore
CVS opened 433 new stores in 1999 and opened
or began construction of 20 ProCare apothecaries.
Plans call for the opening of 400-450 stores
annually in existing and new markets.