Walgreen considers a change of pace

Deerfield-based Walgreen Co. is considering slowing the pace of store openings, a move away from one of its key sales drivers, but one its chief executive said would help earnings.

"We have discussed that within our company," Jeffrey Rein, chairman and chief executive, said of slowing the store opening pace during an investor conference on Wednesday. "We have not made any decision one way or another."

Rein said the idea of slowing store openings had good and bad points.

On the plus side, it would reduce the need to develop managers. Rein noted that in 2008 the company would need about 875 new managers due to the new stores, promotions and retirements. The company currently plans to open 550 new stores -- more than one per day -- in the fiscal year ending Aug. 31, 2008, a spokesman said.

"That's quite a challenge on the development side," he said during a presentation at the Morgan Stanley Consumer & Retail Conference.

On the downside, if the company slows its store opening pace, it risks losing some of the best locations to competitors like Rite Aid Corp., as well as to companies outside the drugstore business, such as banks that are adding branches.

Walgreen operated 6,059 stores as of Oct. 31. The company has expanded at a rate of about 8 percent annually on a square- footage basis for the past several years, a spokesman said.

"In the past, their organic store growth has been an important part of their strategy," said Sarah Henry, an analyst at MFC Global Investment Management, which holds about 1 million Walgreen shares.

Rein said the company could reduce some of the items it sells to make space for other offerings that could lift sales.

"There is clearly an opportunity to wring more sales out of the store base," Henry said. "A lot of it would depend on execution."