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.

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