Have a holly, jolly drugstore

Jordan Wiklund was trying to figure out what to get his sister-in-law for Christmas.

A sweater at Macy's perhaps? How about a DVD at Best Buy? Maybe some towels at Target? Earlier this week, the 27-year-old St. Paul resident made his choice.

"Bought a Snuggie at Walgreens for $10," he said. "Can't miss!"

Walgreens? Really?

The blanket "just happened to be there," Wiklund said. "I don't normally think of Walgreens as a place to buy gifts, but it worked out. She is really hard to buy for."

Long regarded as a possible, though not necessarily ideal, destination for last-minute gift seekers, drugstore chains like Walgreens and CVS are increasingly challenging department stores, discounters and specialty shops for sales throughout the holiday shopping season.

About 14 percent of adult consumers, or some 18 million people, did some holiday shopping at drugstores during Black Friday weekend and Cyber Monday last month, according to the National Retail Federation. While drugstores trail discount stores, department stores and even supermarkets for holiday traffic, the numbers are still impressive given the limited amount of space pharmacies devote to seasonal items.

Formidable merchandisers in their own right, CVS and Walgreens have stocked their shelves with clothes, toys, portable televisions, digital cameras and high-end fragrances to complement their regular assortment of toothpaste, cold remedies, and toilet paper.

In fact, the figures demonstrate how fragmented and competitive retail has become, with various store formats encroaching on each other's territory.

Drugstores have been particularly vulnerable as large discounters like Wal-Mart and Target offer pharmacy and photography services. In response, pharmacies expanded their store sizes from 2,500 to 15,000 to 20,000 square feet and added seasonal goods in the center aisles, said Jim Danahy, CEO of CustomerLAB, which advises retail pharmacy chains.

Walgreens and CVS dominate the Twin Cities market among stand-alone retail pharmacy chains. Walgreens operates 144 stores in the state, including 120 in the metro region. CVS, which first entered Minnesota in 2004, now has more than 40 locations.

At first, drugstores stuck to low-cost stocking stuffers. But gradually, they branched into calling cards, cellphones, and, most recently, toys, Danahy said.

For example, Walgreens today sells three of the holiday season's best-selling toys, including Monster High Dolls, Angry Birds board game and Light Sprites. The chain also offers Nerf guns, puzzles, and nursery play sets.

Though Walgreens' space for holiday goods has remained constant over the years, "we have done a lot of work on making better use of that space," said Joe Willey, Walgreens' district manager for the Twin Cities. "We have some of the best purchasing agents in the business."

Walgreens focuses on "a convenience-based shopper looking to buy secondary gifts for a primary receiver or a primary gift to a secondary receiver, like a teacher, neighbor, or co-worker," he said.

At times, CVS seems more like a Best Buy than a pharmacy. The chain sells iCraig Tower Stereo System for $99, a Zone 60 interactive game console for $39.99, and even a Emerson telescope for $19.99.

"Last minute shoppers can head to CVS ... to find great deals on a variety of gift options" without the hassle of holiday crowds, senior vice president of merchandising Judy Sansone said in a statement.

Pharmacies' biggest asset is the element of surprise, said Erickson of Deloitte. When a customer goes to a drugstore to pick up a prescription, he or she doesn't expect to see digital video recorders or popcorn- making machines.

"With department stores, you know what they have," Erickson said. "Drugstores mix it up. You never know what you are going to find in the holiday aisles."

Drugstores do face formidable challenges. Many consumers still don't think of pharmacies as legitimate holiday retailers. "It is not the place I would ever shop for gifts," said Kathryn Haddad, 40, of Minneapolis. "I usually think people who are hard up for cash shop at CVS. I am not."

Since the stores are not large holiday merchandisers, they must make sure the products they do carry sell, analysts say. In other words, they have very little margin for error.

But done correctly, such holiday merchandise can be "quite profitable" and give drugstores a real boost in sales, Danahy of CustomerLAB said. Last year, holiday sales for major drug chain grew a healthy 5.4 percent, following a strong 6.8 percent increase in 2009, according to Racher Press, which publishes the trade publication Chain Drug Review.

"He really wanted it," she said. "It seemed kind of weird. He better like it."