Shoppers reaps rewards of personalization

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As the highly competitive retail market pinches retailers' sales, Shoppers Drug Mart Corp. is getting a boost from offering personalized promotions to its rewards program members.

The company has stepped up its strategy of tailoring deals to its Optimum members' buying patterns, targeting customers who it thinks would appreciate a discount on specific products. For example, if a customer buys a lipstick, Shoppers may e-mail her a deal on her next mascara purchase.

"We continue to become smarter about our implementation" of customized promotions, Domenic Pilla, chief executive officer of Shoppers, told a conference call on Tuesday. "We're in the very early stages."

Shoppers generated a solid third-quarter performance despite margin-pinching regulatory reforms and the distraction of its upcoming takeover by grocery giant Loblaw Cos. Ltd. Its results "demonstrate that management remains focused on delivering industry-leading performance metrics," Irene Nattel, retail analyst at RBC Capital Markets, said in a note.

Shoppers' front-of-store (non-prescription) sales at stores open a year or more – a key retail measure – grew 2.4 per cent, helped by customized promotions, company executives said. In contrast, those quarterly sales at rival drugstore chain Jean Coutu Group Inc. picked up by only 0.5 per cent, it reported recently.

Those sales at the prescription counter rose 1.8 per cent at Shoppers in its latest quarter while dipping 0.5 per cent at Jean Coutu.

The Loblaw acquisition will provide Shoppers with more economies of scale but could also take its attention off its important strategies, including the growing threat posed by U.S. discounter Target Corp., which continues to fine-tune its own REDcard loyalty program.

Kenric Tyghe, retail analyst at Raymond James, said Shoppers' rewards program is ahead of other domestic rivals in analyzing customers' buying habits. For instance, it can "upsell" customers by offering deals on more upscale items than they previously bought, he said. "But they're doing a fraction of what they could be doing."

Mr. Pilla said the company is touting more promotions to its Optimum members to lure traffic, which is resulting in larger purchases. For several quarters, the retailer has enjoyed higher traffic and "basket size" – or the amount purchased by customers, he said. "That's very encouraging in terms of the success of our promotional program."

The retailer is doing it by sending more customized e-mails and snail-mail deals to its loyalty card members, he said. "It is much more than just one offer per week," added spokeswoman Tammy Smitham. "It also highlights relevant flyer promotions."

Shoppers' third-quarter profit slipped to $166-million or 83 cents from $168-million or 81 cents a year earlier. But the latest results include the transaction costs related to the Loblaw deal of $14-million.

On an adjusted basis, profit-per-share rose to 88 cents from 85 cents. (As a result of the company's share buyback program, there were 3.4 per cent fewer diluted shares outstanding compared to a year ago.)

Sales rose to $3.3-billion from $3.2-billion. Shoppers said it also benefited from strong growth in prescriptions filled and gains in its long-term care business.

Shoppers Drug Mart (SC)

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