By  on March 4, 1994

LINDEN, N.J. -- While Phar-Mor and Drug Emporium -- two deep discount drugstore leaders -- are battling back after suffering financial problems, a three-store operation in New Jersey is proving that the low-margin, high-volume approach may still be viable.

The first Gordon's Deep Discount unit opened in Newark, N.J., in 1988. Sales hit an estimated $11 million last year.

Gordon's opened its newest unit last December, an 18,000-square-foot store in this town about 15 miles south of company headquarters in Newark. The third Gordon's is on Staten Island.

According to company president Gordon Keil, Gordon's has flourished by getting back to the roots of deep discounting, which include spotlighting high-demand, high-margin categories such as cosmetics.

"Deep discounting can work, but it needs to be an entrepreneurial business," Keil said. "You need to be able to wheel and deal to get the good buys. You have to operate as a regional chain."

Several other deep discount firms, he added, matured into national entities and in the process lost the ability to score super buys. Others set their sights too high and expanded into unprofitable merchandise -- such as food items -- just to achieve lofty volumes at the expense of profits.

"We don't need volume figures that are like telephone numbers," Keil said. "These stores are capable of producing three or four times [the volume] of conventional drugstores, not the 10 times many people thought."

An average drugstore rings up yearly sales of $2.5 million. For Keil, the secret is offering product classifications with healthy gross margins and high demand.

"We don't want to be a grocery store," said Keil. "We operate with a mix of higher margin products combined with sharply priced closeouts, including cosmetics, fragrances, health and beauty aids, greeting cards, housewares and in our other two stores, pharmacy."

The unit in Linden does not have a pharmacy counter because of its proximity to a FoodTown Supermarket with a pharmacy. Cosmetics is indeed a core category in the store, accounting for an estimated 7 to 8 percent of sales, versus 4.6 percent in a conventional drugstore. The department occupies about 10 percent of total selling space. It is in the rear of the store to serve as a traffic pull. An outside aisle is positioned to cordon off cosmetics, giving it a boutique look.The perimeter houses mass pegged brands including Max Factor, Cover Girl, Maybelline, Revlon and L'Oreal. All mass brands are discounted up to 25 percent. A price check between a Caldor in the same shopping center on Cover Girl makeup revealed Gordon's price was $1 less -- $2.99 versus Caldor's $3.99.

The peg wall is rounded out with a 16-foot professional nail care department that includes Jonel, Nailene, Fungi Free and Zap Dry.

"Professional nail care has really been great for us, and we expanded it from four feet," said Jo Ann O'Connor, buyer.

O'Connor said she wants to add Kiss Products and Del Laboratories' new Sally Hansen professional products to the lineup. Aisles inside the department accommodate mass fragrances and promotions. Within this area, Gordon's integrates closeout beauty items procured via closeout specialists.

According to Keil, the closeouts -- such as a Chantilly fragrance set and a Lutece dusting powder -- help boost profits. Since the closeouts are a one-shot deal, Gordon's posts signs alerting customers that "what you see today may be gone tomorrow," a push for them to buy it now.

The large cosmetics area affords Gordon's the opportunity to offer budget and specialty lines in addition to the standard mass market fare. For example, Gordon's recently added Pavion's Solo Para Ti, a cosmetics line aimed at Hispanic women. O'Connor said it has been selling briskly.

A glass counter stocked with prestige fragrances spans the front of the department. More than 700 stockkeeping units are available, including Giorgio Armani's Gio, Ralph Lauren's Safari and Elizabeth Arden's Sunflowers and Red Door. The prices of the prestige fragrances are based on the acquisition cost from the supplier, but generally they are discounted up to 40 percent off department stores' prices.

A few examples: a 1.7-oz. eau de parfum spray of Design priced at $24.99 versus the list price of $32.50; a 1-oz. eau de toilette spray of Elizabeth Taylor's White Diamonds at $24.99 versus $30, and a 1.7-oz. eau de toilette spray of Dune at $29.99, compared with the list of $40.

For a Valentine's Day promotion, Gordon's offered a coupon worth $2 off any fragrance priced over $15. The department also sells prestige skin care from Lancome and Elizabeth Arden secured via secondary sources."You have a customer who knows these items from department stores and comes here because she knows we have good prices," said O'Connor.

Prestige has been a major contributor to beauty sales, according to O'Connor.

"Some of our bestsellers are Sunflowers, White Diamonds, Dune and Red Door," she said.

The outside wall of the cosmetics department is the home to skin care, including Cabot's Vitamin E, Aveeno, Rainbath, Freeman and Oil of Olay. Following in the steps of many mass marketers, Gordon's is planning to expand the bath selection.

Although Gordon's buys a substantial amount of merchandise on deal, Keil said efforts are made to have all major brands on a consistent basis. In the original days of deep discounting, retailers procured only what was on special.

"Now we will always have Scope, but it may only be the 32-ounce size one week," he explained.

Part of the entrepreneurial approach needed to successfully operate a deep discount unit is reacting to market needs. The three Gordon's stores serve different markets.

The first unit attracts many Portuguese residents of Newark's Ironbound section. In fact, Keil first got the idea of starting Gordon's when a Pathmark supermarket relocated, leaving a void in the market for health and beauty aids. Keil was familiar with the market, having served as director of non-foods for Pathmark, a division of Woodbridge, N.J.-based Supermarkets General.

Keil said the Newark unit is a neighborhood store, and customers come on foot.

"These customers are loyal and shop the store almost every day," Keil said.

He added that the store is one of the few locations for cosmetics in the area. "We really dominate in cosmetics at that store," he said.

Shoppers in the Staten Island store, on the other hand, tend to drive there from a larger radius. The Linden unit is still building its clientele.

"It's too early to tell with this store, but we are a destination shopping trip," Keil said.

Although Keil said it is imperative to remain a regional operation, he is looking for new locations in contiguous markets and hopes to have two more by the end of the year.

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