NEW YORK, March 2 (Reuters) – Major US retailers including Best Buy (BBY.N), Walmart (WMT.N) and Amazon (AMZN.O) are expanding their range of healthcare and healthcare products as inflation-conscious Americans do more shift their budgets towards services and away from goods.
Electronics retailer Best Buy recently launched a partnership with Atrium Health, part of Advocate Health, one of the country’s largest not-for-profit hospital systems, Best Buy chief executive officer Corie Sue Barry announced Thursday in a call with analysts.
The partnership combines Atrium’s hospital-at-home program with Best Buy’s technology services, she said.
Also on Thursday, Walmart announced plans to open 28 new health centers in Texas, Arizona and Missouri, bringing the national total to more than 75 locations.
Meanwhile, in February, Amazon completed a $3.5 billion acquisition of primary care provider One Medical, which is also aggressively expanding into the sector.
The growing interest in healthcare from some of the nation’s largest retailers comes as American consumers pull back on discretionary purchases amid persistent inflation.
This puts retailers in a business full of challenges. Amazon’s foray into healthcare about five years ago has yet to break long-standing industry practices or reaped a flurry of good fortune from its virtual pharmacy and other programs.
However, Best Buy’s chief financial officer, Matthew Bilunas, predicted that continued growth in the company’s healthcare services would help its gross profit rate expand, even as it anticipates a slowdown in demand in 2023.
Best Buy’s comparable sales fell 9.3% in the holiday quarter, slightly beating Wall Street’s expectations. Demand for computers, home theaters, home appliances and cell phones was particularly weak, driven by higher consumer spending on essentials like food and fuel.
“If the fundamentals are where this persistent inflation is, that means the client will be making trade-off decisions,” CEO Barry said on the call.
Best Buy has invested heavily in healthcare services as an alternative revenue stream to selling electronics in recent years, and has made several acquisitions in the sector, the most notable of which was its $800 million purchase of GreatCall Inc in 2018.
In 2021, the company also bought Current Health, a home care technology platform that enables monitoring through wearable devices.
“The role of technology in healthcare is becoming more important than ever, and our strategy is to make home care possible for everyone,” said Barry.
New enrollments for Best Buy’s healthcare services are expected to contribute 40 to 70 basis points to gross margin improvement this year, despite lower sales. To cut costs, the company is also removing some features from its tech-centric membership services, including free same-day delivery.
“It’s a very profitable business,” said Hilding Anderson, vice president and head of retail strategy at consulting firm Publicis Sapient.
“The margins that you can make in some of the wellness and health product categories have become quite significant. It also drives walk-in traffic in physical stores, and that’s the main source of income for most of these retailers.”
Both Walmart and Amazon are also forecasting lower-than-expected full-year profits as consumers pull back spending and gravitate towards cheaper private label for essentials.
Healthcare spending — projected to reach $5.2 trillion nationwide by 2025, according to the US Centers for Medicare and Medicaid Services — has become an enticing growth path for some retailers.
In addition to its investment in One Medical, Amazon added a generic subscription add-on to attract new customers.
Reporting from Katherine Masters in New York, Uday Sampath in Bengaluru and Jeffrey Dastin in San Francisco; Edited by Kirsten Donovan and Tom Hogue
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