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Eckerd renews revenue focus

On the day parent JCPenney reports a loss, Eckerd reveals a new pricing strategy.

By MARK ALBRIGHT

© St. Petersburg Times, published February 23, 2001


Eckerd Drug has a no-nonsense new ad slogan -- "Get More" -- and a bargain-oriented pricing strategy for non-pharmacy goods.

But the chain's struggling parent won't be opening any new drugstores until it sees some positive results from the changes.

"We've got the right team in place to take Eckerd to the next level," said Allen Questrom, chairman and chief executive of Eckerd's parent J.C. Penney Co. Inc. "But we will not resume expansion until this new business model proves itself."

The move to continue a freeze on expansion until Largo-based Eckerd regroups will cost the nation's fourth-biggest drugstore chain dearly in the continuing store-building race against its larger rivals. Walgreens recently said it would open 500 new or relocated stores this year. CVS Corp. has set a goal of 290 to 320.

Questrom, the retailing executive credited with guiding Federated Department Stores from bankruptcy to prosperity during the 1990s, made the remarks as Penney reported a dismal fourth-quarter loss Thursday. The loss of $284-million, or $1.11 a share, compares with a loss of $12-million, or 8 cents a share, in the same quarter a year earlier. Revenues slipped to $9.75-billion, down from $9.83-billion.

For the fiscal year, J.C. Penney Co. lost $409-million, or $1.68 a share, compared with previous-year earnings of $336-million, or $1.16 a share.

JCPenney executives preferred to point to a fourth-quarter operating loss of 3 cents a share that was smaller than the loss of 10 cents a share analysts expected a month ago. JCPenney closed the fiscal year, which ended Jan. 27, with $1-billion in cash. The operating loss does not reflect $433-million in previously announced restructuring charges to close 47 department stores, eliminate about 5,000 jobs, remodel 600 Eckerd stores and fire an outside firm that has been running Eckerd's computer department.

"It was a difficult year, but the results in no way represent the potential of Eckerd," said Wayne Harris, the former supermarket executive Questrom installed last fall as Eckerd's new CEO.

Price markdowns to get rid of unsold or discontinued goods caused sales in Eckerd stores open more than a year to drop 8.1 percent during the quarter. That was despite a 14.4 percent increase in pharmacy sales that account for more than half of Eckerd's revenues. Overall, Eckerd revenues increased nearly 3 percent to $3.49-billion, up from $3.39-billion.

Harris intends to concentrate on fixing the front half of Eckerd stores, where general merchandise sales slid by 1.6 percent.

He plans to add higher shelves and more aisles to about 600 of the 2,700 Eckerd stores. The idea is to force customers to walk a more circuitous path past more merchandise en route to the pharmacy counter, just as they must at Walgreens. About 300 of the stores that are "being refreshed," as Harris put it, are less than 5 years old.

The fix-up includes a paint job and extra fixtures. Also the cosmetics selection is being cut by 30 percent by eliminating the least popular items.

Harris also said the new strategy is "value driven," with lower prices on such basics as snack foods, paper goods, batteries, cosmetics and light bulbs. Previously Eckerd merchants were more concerned with holding the line on prices of commonly purchased basics to protect profit margins. Harris hopes to make up the lost profits by selling more goods at a slightly lower profit.

"We were not competitively priced," said Questrom.

As the "Get More" slogan suggests, subtle messages are not part of the program. Signs promoting sales in stores that used to be blue are now bright red and yellow with much bigger letters.

Weekly print ads that used to vary in size and product mix are back to basics, too. The circulars will be a minimum of 12 pages, with two pages dedicated to photo processing and one page dedicated to pharmacy and health products. The rest will promote seasonal merchandise and deals on basics. In the past some Eckerd circulars were much thinner than 12 pages, varying with supplier contributions. Many times circulars never mentioned the pharmacy or photo departments, the chain's two biggest departments.

For the fiscal year, Eckerd reported an operating loss of $76-million, down from a profit of $183-million. The company did not break out one-time restructuring charges or per share results. Revenues increased 5.3 percent to $13.1-billion, up from $12.4-billion.

- Contact Mark Albright at albright@sptimes.com or (727) 893-8252.

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