By  on June 8, 2007

SKILLMAN, N.J. — The cashier at an Eckerd store here laughed as she waited for a credit card purchase to go through. "Maybe the new system will be better," she chuckled. "I just got used to this one."

For the second time in less than two years, this Eckerd store, located at 1375 U.S. Highway 206, is changing hands and will shortly become a Rite Aid. The deal marks the third time in 20 years this store has had new ownership. It originally was a Thrift store, which was purchased by Eckerd. Then Eckerd was snapped up by Brooks, which as of Monday is being absorbed by Rite Aid Corp.

Stores like this represent the future for Rite Aid, which with the $4 billion purchase of 1,850 Brooks-Eckerd stores will be able to better compete with industry leaders CVS and Walgreens. It is the latest step in a massive compression begun in the Eighties of the chain drugstore industry, which is now dominated by the three chains.

Without the doors the deal adds, Rite Aid would remain a distant player. However, some wonder if the deal is too big for Rite Aid to digest, especially since some industry pundits think the price was too much for unproductive stores. Many of the Brooks-Eckerd stores have struggled, especially at the front end.

For Rite Aid, the purchase boosts the Camp Hill, Pa., operation's presence along the East Coast. Here in this central New Jersey town, the closest Rite Aid is more than 15 miles away. The chain still has opportunity in densely populated areas in many markets across the U.S. Mary Sammons, chief executive of Rite Aid, said the deal certainly closed gaps that existed with the competition in operating markets.

With the buyout, originally announced last August, Rite Aid operates 5,160 stores in 31 states and the District of Columbia. CVS now has more than 6,160 stores and Walgreens has about 5,700.

Rite Aid must divest itself of some stores as mandated by the Federal Trade Commission. The chain announced on Wednesday it would sell 23 stores to Kinney drugs, Medicine Shopper International, Big Y, Weis Markets and even competitor Walgreens.The transaction changes the complexion of chain drugstore retailing and will have an impact on the beauty business. Rite Aid earmarked $1 billion to spend on rebranding and remerchandising the stores. However, several cosmetics manufacturers said Rite Aid was looking to them to help share the costs of updating the beauty departments. "What they are asking for is huge," lamented one source. Rite Aid wants to have the stores under the Rite Aid logo and systems within 16 months.

While Walgreens and CVS have been adding more service and proprietary brands, Rite Aid has also been sprucing up, adding more components of its Customer World stores to its existing 3,300-plus stores.

While Rite Aid's efforts may not be as talked about as those of its competition, the chain has certainly put a bigger focus on beauty while adding new decor and improvements. Paramount has been using consumer research to better understand what the Rite Aid consumer wants and how to deliver it. Beauty in new formats is front and center and features easy-to-read signs to help shoppers find beauty items. Rite Aid also has publications touting beauty items within the store. The chain was the first in the Eighties to offer what was widely knocked off — a money-back guarantee on color cosmetics.

Vendors singled out many categories where Rite Aid has become among their most important stores, such as nail care (including artificial nails), bath and body and fragrances.

Many industry eyes are on Rite Aid as it decides what to do with the derm centers Brooks-Eckerd operates. These large boutiques are space- and labor-intensive, and Rite Aid will have to scrutinize the return, especially as the chain tries to boost front-end sales. On the positive side, of course, are the margins the upscale products deliver. Suppliers said Rite Aid's beauty departments were more productive than Brooks-Eckerd's — suggesting the Rite Aid model will prevail.

There will also be jockeying among cosmetics vendors. Those doing business with Rite Aid will hope to get instant accessibility to Brooks-Eckerd. Those in Brooks-Eckerd hope to maintain their footage. Industry experts are divided on the outcome. Some think the bigger brands will squeeze out fledgling suppliers; others think Rite Aid will look solely at productivity, which could open the doors for some manufacturers with strong sales-per-foot strategies.

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