Drugstore.com touts OTC growth

Drugstore.com continues to experience growth – particularly in sales of OTC products – and is expanding internationally, a company executive told attendees at the Jeffries 5th Annual Internet & Media Conference in New York this week.

Last November, Drugstore.com launched its new store with Rite Aid, which leverages Drugstore.com’s technology and Rite Aid’s “50,000 strong customer base,” CFO Tracy Wright said. While it is too early to give sales projections, Wright said, initial results have been promising. Drugstore.com’s overall OTC sales, which account for 70 percent of its revenue, grew six percent in fiscal year 2008, while overall e-commerce sales dropped six percent in 2008.

The company also realized fourth quarter net sales of $93.9 million and fourth quarter gross margins of 28.5 percent. “The OTC segment is our largest and is driving the majority of our growth,” Wright said. However, Drugstore.com’s mail-order pharmacy net sales decreased 25 percent to $9.6 million for the quarter and 11.5 percent to $44.4 million for 2008. Meanwhile, OTC sales are increasing because they are essential to most consumers. Wright referred to a recent Comscore survey showing that the category of health and beauty products is one of the last ones on which consumers will decrease spending. In addition, 60 percent of the e-tailer’s 45,000 SKUs are considered replenishment items.

“One of our key advantages in this economy is that a large percentage of our products are not discretionary,” Wright said. For example, Drugstore.com’s sales of vitamins and supplements grew around 40 percent in the fourth quarter, and sales of allergy and sinus products grew 45 percent. Sales of its vision products also grew 14.5 percent in the quarter. While the holiday season was challenging for most retailers, Drugstore.com’s sales grew because of promotions such as free shipping.

“We saw an eight percent incline in our OTC order volume. Most of that was due to effective promotional strategy: customers were taking advantage of discounts and free shipping,” Wright said. “We have compelling value and pricing, a strong loyalty program, and attractive promotions. In this environment, that is increasingly important.”

By mid-2009, Drugstore.com will also have an online store with Medco. It will feature primarily health products, rather than the health and beauty care items mix featured in its Rite Aid store. “Diabetic patients currently have a great deal of OTC product needs that Medco is not currently serving,” Wright said.