Wal-Mart Medical Clinics Stumble

Wal-Mart has fallen behind on plans for putting retail medical clinics in its stores, but says it hasn't given up on this growth area

By Greg T. Spielberg

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The idea for "Wal-Mart Medical Clinics Stumble" came from BusinessWeek reader David O'Reilly, a life sciences executive and entrepreneur in Redwood City, Calif.

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Solantic

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.

medical mcdonald's

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.

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