Two years ago, Wal-Mart Stores (WMT) announced plans to have retail medical clinics in 400 of its stores by 2010 and said it saw the potential for as many as 2,000. By February 2008, the retailer had 78 clinics. But now,—after failed venture-capital collaborations, a few faulty partnerships, and a reassessment of the business model—it has only 31.
For a company known for its retail acumen and dominance, that retrenchment illustrates the complicated nature of incorporating basic-care facilities into a big-box business model. Americans have shown increased interest in retail medical clinics, which are typically open seven days a week and operate until as late as 8 p.m. According to the Convenient Care Assn., a trade organization, visits doubled nationally between 2007 and April 2009, to 14% of the population from 7%. The retailing behemoth, however, is still formulating an appropriate model. "Wal-Mart is not a drugstore. I'm not surprised that there would be false starts," says Candace Corlett, president of consultancy WSL Strategic Retail. Pharmacy chains, meanwhile, have seized a large swath of the retail clinic market.
Still, Wal-Mart sees plenty of opportunity and says it remains on track to have 400 clinics within the next few years to take advantage of growth in the field.
Wal-Mart collects a brand fee and income from renting space to the clinic operators—and uses its massive buying clout to buy equipment for them—but it holds no ownership stake in the clinics. These offices, also known as "convenient care" clinics, are typically staffed by nurse practitioners or physician assistants and offer basic treatments for common ailments such as strep throat, sinus infections, and rashes.
Clinics mesh basic care with a retail philosophy that stresses convenience and savings. Prices are usually displayed on menu boards. Visits typically cost $45 to $75, not including prescriptions. The clinics perform physicals, drug tests, blood work, and other noninvasive screenings without the lengthy waits, high prices, and hefty paperwork often associated with hospitals. For more serious cases, the clinics refer patients to a doctor or emergency room. The goal is to "simplify, like a Starbucks (SBUX) or a McDonald's (MCD)," says Karen Bowling, CEO of Solantic, a Jacksonville, (Fla.)-based company that operates 26 clinics, three of them in Wal-Mart stores.
Wal-Mart isn't alone in searching for a profitable business model in an industry that is striving for greater awareness and traffic. Retail clinics need customer traffic to cover their $500,000 to $600,000 yearly operating costs. With each visit bringing an average of $59 to $80, a clinic requires roughly 20 patients per day to break even and 30 to turn a healthy profit. Walgreens (WAG) subsidiary Take Care Health Systems, for example, operates more than 345 offices and sees patients as young as 18 months. By expanding its hours and services, Take Care Health had estimated sales of $450,000 per location in 2008, according to Kalorama Information, which publishes health-care market research. "I think the challenge in [making the clinics] profitable is as simple as getting to the point where you have an adequate amount of consumer awareness," says Chip Phillips, president of MinuteClinic, which has 500 retail clinics in 25 states and operates as a unit of drugstore chain CVS Caremark (CVS).
location, location, location
Wal-Mart has more than 1 million potential clients among its employees alone, and it is betting that the combination of rising health-care costs and consistent traffic from budget-minded shoppers will prove successful. However, the enterprise has been marked by early stumbles and is taking longer than expected to develop. Industry experts and clinic operators cite brand confusion, advertising problems, broken partnerships, and the recession as factors in Wal-Mart's halting foray in the field.
Location is key, too. Freestanding retail clinics operating out of strip malls draw attention from auto traffic or public transportation stops. Solantic, for example, sees more business at such locations, and especially at its Orlando International Airport site. Wal-Mart's clinics, however, are typically situated inside near the store's main doors—along the same row as its photo studios and Subway sandwich shops—rather than near its pharmacies, and may catch a consumer's eye only on the way out. Plus, the company doesn't allow signage directly outside the store to promote the clinics and restricts indoor signs to areas near the clinic offices, says Natassia Orr, administrator of Broward Health Weston in Weston, Fla. At Wal-Mart, "the challenge is from an awareness perspective," Solantic's Bowling says.
The retailing giant does run in-store TV advertising and promotions on walmart.com, and is "working with our existing clinic operators to determine how we can better communicate to our customers about the benefits of clinics," company spokeswoman Christi Gallagher says.
As unlikely as Wal-Mart's foray may seem, its venture into the clinic business comes as no surprise to Paul Keckley, executive director of the Deloitte Center for Health Solutions in Stamford, Conn. "Think of it not as running a clinic but running a health-care services organization," he says. The company already provides prescription drugs, including increasingly popular generics, and medical products. By incorporating clinics, Wal-Mart offers consumers yet another reason to come inside, and increases its potential indirect revenue. Kalorama publisher Bruce Carlson estimates that for every 70 clinics, a big-box store can pull in $13.5 million a year in indirect sales. "Initially, it looked like the box stores were going to be the entities that were going to really have a lot of these clinics," he says.
drugstores capture clinic market
Instead, brands already known for their drugstores—CVS, Walgreens, and Rite-Aid (RAD)—have captured the bulk of the market. By the end of 2008 there were 934 retail clinics in drugstore chains, or more than 20 times the number in Wal-Mart stores, according to Kalorama research. Carlson estimates there will be more than 1,000 in drugstores by 2010, but only about 70 in big-box stores. Broward Health closed its pair of Express Aid locations earlier this year after treating an average of five patients a day since opening the clinics in early 2008. "The easy part was providing health care. That's what we do," says Orr.
Unlike the subsidiary relationship many drugstores have with their clinics, Wal-Mart operates on a landlord/tenant basis with its retail operators. While clinics at CVS or Walgreens can lean on their partners during tough times, tenants cannot. "Certainly, some of the operators were affected by the downward economy," says Tine Hansen-Turton, executive director of the Philadelphia-based Convenient Care Assn.
Many locations that faltered were networks of venture-capital enterprises. Wal-Mart requires its independent operators to hire health professionals to deliver care, says Mary Kate Scott, founder and CEO of Scott & Co., a health-care consultancy. For venture capitalists looking to invest in a rapidly profitable business, running a co-branded clinic with two partners is a difficult proposition. "When you don't deliver the service or own the brand or own the space, you have almost nothing," Scott says. "Essentially, the investors lost with the Wal-Mart strategy."
In January 2008, nascent clinic operator CheckUps closed its 23 Wal-Mart locations across the South after failing to raise enough money. Then in June, Colorado-based SmartCare Family Medical Centers shuttered all 15 of its in-store businesses. RediClinic, whose largest investor is AOL (AOL) co-founder Steve Case's Revolution Health Group, parted ways with Wal-Mart in December, shelving plans for 200 co-branded clinics nationwide. The company also has clinics in 21 Texas grocery stores. RediClinics declined to comment about its business partnerships.
Insiders aren't overly concerned with Wal-Mart's false start. "Remember, we're still very much a young industry," says Hansen-Turton. "The beauty of a young industry is that you can try different models." With patient visits rising and satisfaction surveys showing high marks, retail clinics are confident they'll succeed. According to a 2008 Wall Street Journal/Harris study, 90% of adults were satisfied with the quality of care they received at clinics, 88% were satisfied with staff qualifications, and 86% were satisfied with the cost.
After hiccups with independent operators, Wal-Mart plans to increase collaboration with established medical providers. Gallagher says more than 400 hospitals and health systems are trying to open sites in the retailer's stores. Janet Teske, a nurse practitioner and manager of Quick Care clinics in six Wisconsin Wal-Marts, says she's benefited from the relationship. The clinics are part of the larger Aurora Health Care network of hospitals and health-care service providers in the state and retail clinics act as an outpost. Visits to Quick Care clinics have tripled over the past year, to between 20 and 40 people per day. By partnering with a health-care system like Quick Care, Wal-Mart can provide patients backup when they need further medical care. Retail clinics also give emergency rooms a release valve for heavy traffic, especially during flu season.
With plans for clinics across the country, Wal-Mart says it will seek continuity through its branding and electronic medical records. Store façades will say "The Clinic at Wal-Mart" and display the name of a local hospital system, offering both the credibility of established health-care systems and the low-price attraction of the Wal-Mart brand. Keckley, of the Deloitte research center, is confident that Wal-Mart's partnerships with hospitals, coupled with the business of its pharmacy and health-care departments, will prove successful. "They're not stupid," he says. "They see the spending curve on health care."