Chemist Warehouse set to shake up sleepy US market

Traditional pharmacies are ‘dead’ in the US, which makes it a perfect place to expand the Chemist Warehouse model, according to co-founder Jack Gance.

Jack Gance said the company was seeing an increase in spending by male consumers who were more interested in sports nutrition. Picture: Aaron Francis/The Australian

Chemist Warehouse is looking at expanding into the US market, according to co-founder Jack Gance.

Speaking at a conference hosted by the Australian Retailers Association in Sydney, Mr Gance said the low-cost pharmacy retailer saw the US as a potentially significant new market for the company.

“The US market is something we really want to go into,” he said.

“The US has changed.

“We have been over there recently, and pharmacy shops are just dead.

“A Chemist Warehouse model over there would just boom.”

Mr Gance was speaking ahead of his company’s proposed backdoor listing in a deal with ASX-listed Sigma Healthcare announced last December, which will create the largest pharmacy company in Australia.

The deal, which still has to receive regulatory approval, is not expected to be finalised until the second half of the year.

But Mr Gance’s comments to the retail conference make it clear that he wants to step up his company’s international footprint – despite his acknowledgment that other Australian retailers such as Bunnings have not done well with their overseas expansion.

Chemist Warehouse currently has some 600 stores in four countries – more than 500 in Australia, 42 in New Zealand, and six in each in Ireland and China.

It also has 17 Ultra Beauty stores with Chemist Warehouse stores and 21 stores operating under the My Chemist brand.

Chemist Warehouse currently has some 600 stores in four countries.

Mr Gance said Chemist Warehouse’s potential for expansion into Australia was limited given the restrictions of the Pharmacy Guild on chemist locations and ownership.

He said the company had expanded into the New Zealand market five years ago and found it to be far more profitable on a per store basis.

“We found New Zealand to be a great opportunity,” he said.

“In Australia, our average turnover is around $12m to $13m per store.

“In New Zealand it is about $20m. We have gone to Ireland where we are doing the same sort of numbers.

“So the trend for us is to be able to expand.”

Mr Gance acknowledged that there were risks with Australian companies expanding offshore.

“Bunnings are a great retailer. They dominate the industry.

“But when they went overseas and tried to have the same model in the UK, it didn’t work.”

But he said he believed that Chemist Warehouse did have a good business model which could work in the US.

“Australian retail is very much advanced compared with other countries,” he said. “America probably has a lot more choice and variety but our retailers do a much better job.

“We have some great retail ideas and great retail concepts.”

Mr Gance said Chemist Warehouse had originally focused on the discount model pharmacies but was moving into more up-market operations through its Ultra Beauty stores which were more profitable as customers were prepared to spend more money in these areas.

“Our business has changed a lot,” he said. “When I first started, we would just do discounts, but today we have brands like Delta Goodrem and Police.

“We now have Ultra Beauty which is a complete change in the atmosphere of the store.

“We have Sephora (makeup) in the store, people spend more.”

He said there had been a significant increase in the amount people were prepared to spend if they shopped at one of those stores.

Mr Gance said Chemist Warehouse’s online sales were around $500m but they were not as profitable as sales in its bricks and mortar stores.

He said the average Chemist Warehouse customer was a “35-year-old housewife”.

But he said he regarded “anyone that breathes” as a potential Chemist Warehouse customer.

He said the company was seeing an increase in spending by male consumers who were more interested in “sports nutrition” products with plans to pitch for more male customers.

Chemist Warehouse dominates the sales of vitamins in Australia, turning over more than $1bn a year in the sector.

“We are doing a lot of sports advertising which appeals more to men than women,” he said. “We have more men in our stores than our competitors.

“We have more than 90 per cent of the sports nutrition market in Australia which appeals to both men and women, but mostly to men.”

Mr Gance said Chemist Warehouse was “not complacent” about the potential competitive threat from Amazon but he said his company provided a better product than Amazon at lower prices.

“We don’t discount them totally,” he said. “But we provide a better product than Amazon at lower prices, and people (who come into the stores) can get experienced advice to help them choose the right product.”

He said the company preferred people to come into its stores than shop on line but “at $500m online sales are still a pretty big store.”

Mr Gance said he did not believe in self check-outs for retail “because there are too many temptations for people to check out without checking out.”

But he said the use of data about customers would play a key role in its future in keeping in tune with what customers wanted.