Byline: Faye Brookman

WARREN, Mich.--F&M Distributors Inc., an 88-store chain that went into Chapter 11 in March, is hoping to emerge from bankruptcy protection with the help of an expanded beauty business. A prototype store in Sterling Heights near here, created by revamping an older unit in late March, puts an emphasis on cosmetics and is the chain's vehicle for an expected turnaround.
To date, 17 stores have been redesigned. The chain hopes to have all of its stores overhauled by August.
F&M executives declined to make projections, but sources say the drugstore chain has its sights set on getting back into the black within two years.
Industry sources estimate F&M is hoping to generate as much as 10 percent of its average store sales of $5.6 million out of the beauty department. F&M executives did not give a comparative figure, but sources estimate that the drugstore chain now does 6 to 7 percent of a typical store's sales in beauty in its older units. That is way ahead of the industry average of 4.6 percent.
The most noticeable change is that F&M--the pioneer of deep discounting--has evolved into a traditional drugstore. F&M likes to refer to itself as a "super drugstore." "Deep discounting, as we knew it, can't exist today," said Stephen Lund, director of HBC. "That's because there are fewer deals, and the consumer wants to be able to find the same merchandise consistently."
The strategy behind deep discounting was to buy large amounts of merchandise from manufacturers only on deal, with advantageous prices for the retailer. That meant the merchandise would vary from week to week, depending on what vendors offered on deal.
Now F&M not only carries the same merchandise from week to week, but it also planograms, or organizes, its departments so that shoppers can find the same item in the same spot on each shopping trip.
Pricing at F&M today is still razor sharp, but the new stores are designed with a more sophisticated ambience to appeal to the tastes of today's savvy shoppers.
Gone are hand-scrawled signs touting savings up to 50 percent.
F&M has made it clear it is serious about making money. That strategy is reflected in the beauty category, where several departments--like skin care, bath and hair care--have been moved to take advantage of merchandising adjacencies.
"We've made it more friendly, but we've also taken advantage of the chance to expose shoppers to higher-margin goods," said Lund. These more profitable items include cosmetics accessory bags, pantyhose, skin care and private label merchandise.
"Before, all beauty items weren't merchandised as one [category], and there were no adjacencies," Lund said.
To create the tie-ins, long aisles have been intersected with shorter ones that create a cross aisle through the cosmetics department. That means a shopper coming in for a mascara or eye shadow is also exposed to the high gross margin products.
The additional aisle breaks also afford F&M the chance to put more products on end-of-the-aisle displays.
"We're merchandising for profit," said Lund.
Cosmetics is now in a much more visible location than in older F&M units. Some older stores had cosmetics on the side or in the rear. Now beauty is in the center of the store, just behind a glass fragrance counter.
Although Lund estimates there is one-third less space in linear footage devoted to beauty than in older units, he said the department is larger in square footage than in old stores because it has been opened up.
"As you can see, we still have plenty of space devoted to each line," he said. "Here's 14 feet of Revlon alone. We aren't trying to appeal to the customer with price alone--we're trying to offer selection."
The cosmetics peg wall includes Revlon, Max Factor, Cover Girl, Physicians Formula, Maybelline and Almay. Signs affixed to the wall help shoppers find specific brands.
The signs used to promote the brands within the stores also will give F&M the opportunity to make tie-ins with manufacturers' coupon programs. F&M is hoping to find ways to add more niche brands, too, according to Julie Landau, the company's category manager.
Already, space has been made for Cabot's line, and the chain is planning to test Jane Cosmetics. In the center of the area are special fixtures that can hold promotional displays for color shade promotions or new products.
To help control inventory, F&M has reduced the length of its pegs for wall merchandising from 10 inches to four inches. By doing so, the department still has the appearance of being in stock without having too many items on each peg.
To squeeze greater margins out of beauty, F&M has added categories such as mirrors and personal care appliances.
In fragrances, the chain is offering gifts with purchase--a beach bag with the purchase of Benetton's Colors, for example.
For Mother's Day, F&M promoted a 1-oz. bottle of White Diamonds, Shalimar, Liz Claiborne or a 1.7-oz. container of Realities or Sunflower for $19.99 each. The typical suggested retail prices for these items are all over $25.
In bath, F&M has reduced the number of upscale bath lines to concentrate on body washes and bath accessory items.
"We found these accessories are really selling well, and we make more money on them," said Lund. He also said he is considering a control brand of bath items.
Skin care has been moved into the beauty area. In the past, skin care could have been two or three aisles away.
"The store is designed to capture the destination cosmetics customer and to do it not solely on price," said Lund, who came to F&M from after 18 years at rival Perry Drug Stores, now owned by Rite Aid Corp., late last year. "But to assume we'd totally walk away from price is wrong because of our heritage. We'll still be as much as 20 percent less."
F&M currently has less than 9 percent of the $1.7 billion Detroit metro market. That's down significantly from the 15 percent share it held only four years ago. The Detroit market leader is Arbor Drugs, with a 36.1 percent share.
F&M's battle to emerge from Chapter 11 protection will be aided, in part, by the fact that it has a number of locations that are considered prime.
"But right now the stores aren't busy enough, and some shoppers are confused by the Chapter 11 filing," said a Detroit retail executive. "They think it means the chain is going out of business."
Part of its effort to get on the road to recovery was the closing of 37 underperforming outlets and the divestiture of PartiGiant, a party supply chain.
Following the sale of PartiGiant's assets, F&M was granted approval of a $15 million interim trade lien, which will be increased to $30 million. That allowed F&M's suppliers to ship to the chain on a secured priority basis.F&M's profits started to decline in early 1994 after the chain's excessive inventories and debt load caught up with it. The company's board named Dale Ward, former president and chief executive officer of Ben Franklin Stores Inc., as president. He is credited with turning around the beleaguered Franklin chain.
Ward put a stop to new F&M store openings and enacted a plan to close underperforming units. In its most recent four quarters, ended Oct. 29, F&M had sales of $753.5 million, up 3.9 percent over the same period the year before, but a net loss of $33.9 million. Comparable-store sales declined 1 percent.
The impressive $5.6 million in sales that each F&M store pumps out per year leads many experts to believe the prototype, coupled with the paring of poor-performing units, will pay off.
F&M executives are confident about the future. Earlier this year, Ward, referring to Ben Franklin Stores, said, "I've been in worse spots, with a company considerably more difficult to turn around than this one."

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