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NEW YORK — CVS gets a beauty of a deal with its purchase of Longs Drug Stores.
CVS Caremark announced Tuesday it was acquiring Longs’ 521 retail sites for $2.9 billion. With the purchase, CVS will total 6,800 drugstores in 41 states and the District of Columbia.
This story first appeared in the August 15, 2008 issue of WWD. Subscribe Today.
The Longs stores help CVS further penetrate California, specifically the central and northern markets. CVS first entered the Los Angeles market with its own new stores dovetailed with Sav-On units acquired from Albertsons. With that purchase in 2006, CVS assumed the dominant position in Los Angeles’ drugstore market overnight.
In an analyst conference call, CVS chairman, president and chief executive officer Tom Ryan said the deal accelerates expansion into Central and Northern California and Hawaii. These are highly attractive regions of the country where we are not currently represented.”
The deal also marks the exit of another strong regional drug chain, following the path of others such as Brooks, Eckerd, Happy Harry’s, Arbor, May’s and Revco. In many retail industries, but especially in drugstores, the big continue to get bigger and more powerful. The industry has dwindled down to a face-off on almost every corner in America between CVS and Walgreens, which has 6,356 drugstores in 49 states, the District of Columbia and Puerto Rico.
With Longs, CVS is absorbing one of the most respected beauty merchants in the business. Longs always has been associated with high levels of service in cosmetics with many stores having cosmeticians. Longs’ potency in beauty dates back 15 years ago when its beauty advisers in stores had buying power and could bring in lines to suit local tastes. The chain has long understood how important beauty is to the drugstore business. Most of the stores have larger-than-average cosmetics departments with service counters. In its heyday, Longs was one of only two chains in America to be allowed to sell Elizabeth Arden on a direct basis.
Also, Longs has been a launching pad for many niche brands in mass beauty, including natural brand Lavera, and recently, Yes to Carrots. Often, manufacturers would pound their chests in pride at entry into Longs because they knew it was the beginning of acceptance into the drugstore business.
Conversely, the exit of Longs — CVS will rename all but the Hawaii stores — will eliminate a chain that was willing to experiment with fledgling brands. With the bigger retailers wielding more power, larger beauty brands undoubtedly will hold the cards.
CVS, however, also has served as a launchpad for many brands, too, and the absorption of the Longs stores can only enhance the chain’s image as it continues to burnish its image in beauty.
Longs has many units larger than typical CVS stores — 22,000 square feet in some cases, versus about half that for CVS’ typical footprint — which experts think can offer room to expand premium skin care centers. “Or that space could help them make a bigger push into in-store clinics,” said industry consultant Allan Mottus. Longs owns the real estate of about 200 of the locations; the rest are rented spaces.
Brands already in CVS were giddy over the news. “It was bound to happen and it is good for us,” said one smaller vendor who does have CVS distribution, but preferred not to be named. And those with a foothold in Longs hope this could open the door to huge distribution growth.
“This is a good fit,” said John McAuliffe, publisher of The Beauty Handbook. “The stores are bigger, but the departments are a good fit.”
One thing vendors agreed on is that CVS knows how to assimilate chains it buys. For example, former Eckerd stores were swiftly renamed and remerchandised upon the completion of the deal. The chain was also textbook in its buy of Revco. “They certainly are aggressive in acquisitions,” added Mottus.