Can Fred's Strategies Help It Counter Slow Comps & Traffic?

The retail segment has been witnessing increased competition owing to technological upgradations and continuous expansion efforts by large retailers. Consumers are increasingly shifting toward online shopping, thereby hurting store traffic. As a result, smaller firms in the segment, who are incapable of adapting with such changing trends, have resorted to store closures as consumer footfall continues to decline.

Fred's, Inc (NASDAQ:FRED) is one such company that has resorted to store closures amid such challenging retail scenario. Let’s now delve into some of the aspects that have led to the dismal performance of the company.

Declining Comps and Store Closure

Fred's has been witnessing sluggish comps, lately, owing to declining store traffic and sale of discontinued inventory. A glance at the comps’ performance over the past four months reveals that, while comps were up 0.8% for during May, the same declined 1.6%, 0.1% and 0.5% during June, July and August, respectively. In fact, the decline in store traffic led to the closure of 39 stores during the first quarter of 2017. Persisting challenges in the Front Store business and competitive consumable categories had also affected the company’s overall sales figures.

Cancelled Walgreens-Rite Aid Merger

Fred's strategic plans for store expansion were gravely impacted by the cancelled Walgreens Boots Alliance, Inc (NASDAQ:WBA) and Rite Aid Corporation (NYSE:RAD) merger on June 30. If the deal was to materialize, it would have positioned Fred’s as the third-largest drugstore chain in the nation after Walgreens and CVS Health Corporation (NYSE:CVS) . The professional, legal, banking and integration planning fees iincurred in connection with this deal, have become unyielding and hurt the company’s profit reserves.

Lack of International Exposure

Since the developed markets of Europe, America and Canada are already saturated, most retail companies are looking toward expanding themselves in developing nations such as China, Brazil, India, Mexico and Russia, amongst others. These nations offer great growth opportunity owing to rising population and an affluent middle class. Fred’s, however, is yet to strengthen footprint in these markets.

Final Thoughts

Such ongoing challenges have led Fred’s to deliver weak bottom-line performance over the past five quarters, posting a loss in each of them.

Nevertheless, the company has been making significant advancement with its turnaround strategies that aims at reducing selling, general and administrative expenses and driving free cash flow. The turnaround plans also includes focusing on organization of its pharmacy business, to drive scripts into the stores and improve service to its patients. The company has also been emphasizing on internal reorganization and geographic expansion. However, such efforts are yet to bear significant impacts upon the company’s top-line performance.

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