As momentum expands, and pressure builds, for retailers to halt sales of electronic cigarettes, the retailers are facing a short-term financial and ethical decision.
Should they continue to sell the controversial products until they run out of inventory, send the products back to the manufacturer to be sold by another retailer, or destroy the products and absorb the revenue loss?
Walmart, Sam’s Clubs, Walgreens and Kroger recently chose the first option. (Kroger is the parent company of Harris Teeter, but Harris Teeter did not sell e-cigarettes).
Walgreens said in a statement that “we plan to exit in an orderly manner.”
Analysts said e-cigarette sales likely make up a very small percentage of revenue for the four retailers.
Because e-cigarettes typically have “a rapid repurchase cycle, existing in-store inventories should sell through quickly,” said Roger Beahm, executive director of the Center for Retail Innovation at the Wake Forest University School of Business.
Taking the destroy-the-inventory approach is Dick’s Sporting Goods following its decision in February to end sales of “assault-style” weapons “to keep them out of private hands.” The company also ended all firearms sales to those under age 21.
Dick’s Sporting Goods chief executive Ed Stack recently told several media outlets, including CBS News and The Washington Post, that the retailer turned $5 million worth of the weapons into scrap metal.
The four retailers also cited recent federal Centers for Disease Control and Prevention reports on e-cigarettes for eliminating e-cigarette sales.
On Thursday, the CDC’s latest update on vaping-related illnesses determined there have been at least 1,300 cases nationwide and at least 26 related deaths.
Most who got sick said they vaped open-pod products containing THC, the marijuana ingredient that causes a high, but some said they vaped only nicotine. Most of the THC vaping liquids are not currently regulated by the Food and Drug Administration.
Open-pod systems allow vapers to refill the nicotine or non-nicotine liquid manually, while closed-pod systems, such as used by top-selling Juul and No. 2-selling Vuse, use ready-filled tanks and attach directly onto the e-cigarette battery.
“This decision is also reflective of developing regulations in a growing number of states and municipalities,” Walgreens said.
Jeff Lenard, vice president for strategic industry initiatives for the National Association of Convenience Stores, said e-cigarette sales were “the big focus of the week” at its recent trade show.
In October 2018, former FDA commissioner Dr. Scott Gottlieb chastised convenience stores for being lax on prevention of e-cigarette sales to underage youths.
Gottlieb said at that time that the FDA was considering limiting the sale of e-cigarettes to adult-only vape shops, which would take the product out of convenience stores.
The proposal is particularly sensitive for convenience stores since traditional cigarette sales represent 28.5% of all in-store sales, while other tobacco products, such as e-cigs and moist snuff, are 5.6%.
“As an association, we can do a lot of things, but we can’t predict where a market might head,” Lenard said. “Individual companies can certainly make decisions related to their business, and we have seen several do just that.”
Brad Rodu, a professor of medicine at the University of Louisville and an anti-smoking advocate, said major retailers “scrapping e-cigarettes is a direct result of the inexplicable failure of federal health officials to quickly determine and explain the precise cause of acute lung injuries and some two dozen deaths.”
“The tragic irony is that the same retailers continue to sell cigarettes. ... Removing vastly safer cigarette substitutes from 8 million current vapers will inevitably increase cigarette consumption, driving deaths even higher,” Rodu said.
The retailers’ strategy for halting e-cigarette sales may be foremost one of “wanting to be seen as socially responsible,” Beahm said.
Still, Beahm said, the four retailers are making a calculated revenue decision to stop selling a legal product.
“Importantly, there is a halo effect that spills over onto the sale of other product categories when a shopper is in a store,” Beahm said.
“By not restocking, not only will there be a loss of sale on the intended purchase (e-cigarettes), but the loss can spill over onto impulse and other intentional purchase items that might have otherwise accompanied a trip into the store.”
The Washington Post reported Oct. 8 that Dick’s Sporting Goods has not disclosed what share of its sales come from gun sales.
For fiscal 2019 that ended Feb. 2, same-store sales fell 3.1%, with Stack blaming much of the slump on gun issues. Customers boycotted the company, and more than 60 employees quit.
However, same-store sales jumped 3.2% for the second quarter. The company raised its full-year financial guidance as well.
Beahm said retailers that discontinue the sale of e-cigarettes, but continue selling traditional tobacco products, “may actually experience an uptick in the sale of their conventional cigarettes as a result of this decision.”
“Certainly, this is an area that they, along with other tobacco — and anti-tobacco — stakeholders, will be looking at closely.”