Consumers Cut Back on Prescriptions, Retailers Report

(MoneyWatch)  You know that times are tough when people cut back on prescription drugs, and it's a trend that could have an impact on a lot of major retailers.

Wal-Mart, Kroger, Target, Meijer, Kmart and others in the discount store and supermarket sectors have added pharmacies, drive-through prescription windows, and major price cuts to boost prescription sales. In the meantime, major drug chains have been expanding through store growth and acquisitions.

To compete for their share of the pharmacy market, retailers have been providing low- or no-cost antibiotics to boost sales for other pricey prescriptions. Wal-Mart made headlines two years ago when it brought down its prices on a range of generic prescription drugs to $4, although Meijer soon after began offering the antibiotics most often prescribed for children free of charge. A pharmacy department can be especially lucrative when customers waiting for prescriptions also buy high margin over-the-counter medications and health-and-beauty aids usually displayed right alongside the pharmacy counter. Appearing on Meet the Press over the weekend, outgoing CEO Lee Scott said Wal-Mart's prescription sales declined as consumers economized. The trend has hit Walgreens, too, with consumers turning increasingly to generic drugs, some newly available on the market. In November, Walgreens' same-store sales fell by 0.9 percent. Same store prescription sales dropped 3.4 percent, while the sales of OTC drug and related products declined by 0.9 percent.

Walgreens has been adding stores at a generous pace. Non-drug retailers have also been adding pharmacies based on the assumption that an aging but convenience-oriented population would reward stores that made it easy for them to fill prescriptions. Given consumer reaction to this recession, however, the investment may take longer to pay off, as consumer demand for drugs has proven to be considerably more elastic than many once thought.