One of the largest companies in the United States made a calculated and fascinating decision this week. CVS Health, which also just changed its name from CVS Caremark, stopped selling tobacco products at its stores yesterday. The company had previously announced earlier this year that it would stop the sale of all tobacco items beginning October 1, but the retailer made the move official a month early as it launches a reinvigorated focus on healthy living – and, thus, the new name.
“We saw a growing contradiction between selling tobacco and delivering health care in a retail environment,” said Larry Merlo, president and CEO of CVS, in announcing the sped-up move. “The contradiction of selling tobacco was becoming a growing obstacle to playing a bigger role in health care delivery.”
To run the numbers here, CVS had sold tobacco products in its 7,700 stores nationwide to the tune of about $2 billion a year. Yes, the 12th-largest company in America just made a decision to walk away from billions of dollars in revenue. And shareholders – the only group besides tobacco makers who you would think would be decrying the move – actually applauded yesterday by pushing up CVS’ stock price by a percentage point. In fact, the company’s stock is up nearly 10% since it initially made the announcement six months ago that it would rid its stores of tobacco products.
Indeed, it helps today to take a stand in business. Sometimes that means saying ‘no’ to certain client requests. The customer isn’t always right, and it’s something all companies can learn from this week’s CVS news. Let’s boil this down to the ad specialty business, where distributors are continuously complaining that clients are looking for low-priced vendors. A full 60% of distributors in Counselor’s 2014 State of the Industry survey said that their clients shop primarily based on price. The pain is felt even further by smaller distributors, 70% of which say price is their customers’ number-one question when buying promotional products.
No doubt, it’s an environment that can be difficult for distributor companies to operate in. And statistics show that the trend is taking a toll on company profits – the State of the Industry survey reports that the average gross profit margin for distributor firms fell nearly two percentage points last year, from 34.8% in 2012 to 32.9% in 2013. That has a real impact on distributors’ bottom lines. But, like CVS walking away from $2 billion in business, distributors have options.
They don’t need to accept low-price demands from customers. When the economy was doing poorly, maybe it’s a strategy that can hold water. But client budgets have loosened now. The key is to present them with ideas and marketing concepts that will improve their business. If you’re selling products, then yes, you’ll be relegated to the low-cost bin. But, if you’re presenting customers with new ideas and strategies and campaigns that will actually make them money and connect them closer to their intended audience, then price will never be an issue.
Don’t be afraid to say no sometimes. CVS just did it in the biggest way possible. So can you.