DETROIT--Arbor Drug has found that beauty is one of its best weapons in the mass market shootout here.
The company has been rapidly gaining market share in an area that has been in disarray.
Kmart Corp., headquartered just across the street from Arbor's offices in Troy, Mich., continues to falter in its turnaround attempts. Deep discounter F&M Inc. is looking for a suitor, a search complicated Thursday when Dale Ward resigned as president and chief executive officer.
In addition, Arbor's former arch rival, Perry Drug Stores, was acquired late last year by Rite Aid. Rite Aid is currently engaged in renaming and remerchandising the Perry stores, creating confusion in the market. Amid the upheaval, the 171-store Arbor's mass market share in the Detroit metropolitan area has tripled over the past decade, reaching 36.1 percent of the $1.7 billion market last year. The nearest competitor is the old Perry chain, with a 31.3 percent share.
Arbor has been flexing its muscles with the opening of five new stores in two weeks, the latest a 10,675-square-foot unit that bowed here Wednesday.
"We plan to open 10 to 15 new stores a year," said Eugene Applebaum, chairman and chief executive of Arbor, in an interview at Arbor headquarters here.
Arbor's sales increased 14.3 percent in the fiscal year ended July 31 to $707.1 million from $618.5 million. Comparable-store sales for the year jumped 9 percent. Beauty sales are also on the rise, accounting for an estimated 6 percent of total volume, up from 4 percent just four years ago. Even more important, however, is the fact that the chain is squeezing greater profits out of the category via the use of scan data. "Cosmetics as a percent of sales and cosmetics inventory turns in the category have improved over the past few years," said Dennis Wozniak, senior vice president of purchasing at Arbor. He said Arbor's approach to beauty is simple: By analyzing sales figures, the store devises tightly edited planograms. Arbor doesn't stock the widest selection of items or the lowest prices in Detroit. But, Wozniak said, the stores are always in good in-stock positions, especially in terms of new launches.
Arbor has been on the cutting edge of implementing technology to control product distribution--much as Wal-Mart has done in the discount store arena. This allows the chain to maintain full shelves while keeping a firm grip on what is selling in its individual stores. Recently, Arbor started implementing a multiphase purchasing system to automate the distribution of promotional and seasonal merchandise. Point-of-sale scan data then alerts buyers to when reorders are needed.
The chain's buying team said the examination of sales movement information allows it to make savvy new product buying decisions. "We think we are one of the first in the market with new products," said Wozniak. "Other chains have open-to-buys. We just buy what we think we need and will sell. We're not encumbered by bureaucracy."
A tour of the newest Arbor revealed several new launches, such as Coty's Ghost Myst fragrance and Wet 'n' Wild's Precious Metals nail enamels. According to Wozniak, another secret of Arbor's success is the frequency with which it resets its cosmetics departments in order to reallocate space for hot brands.
"Cosmetics is [stockkeeping unit] intensive, and it takes a great deal of space. You need to regulate and monitor it and be able to react to changes," said Wozniak. Arbor usually revamps the planograms of its cosmetics departments once a year, but tweaks the product assortment if the scan data reveals that a particular brand or item has caught fire. Management admitted, however, that exclusive use of scanner data to dictate the merchandise mix can tarnish the business.
In beauty, only a few colors might sell, but customers still want to see a wide selection. "You probably don't need 60 percent of the [stockkeeping units]. You have to know where to draw the line and keep a balance," Wozniak said. Arbor is also able to alter its selection based on the demographic profile of each store. The newest unit, in an urban area with a high concentration of African-Americans, features a wide array of ethnic cosmetics like Black Radiance and the Posner line.
Across from the cosmetics peg wall, Arbor houses nail care, hair accessories and hair color. Skin care also has its own area.
Fragrances are merchandised in a glass counter in the corner of the beauty department. Here, too, Arbor keeps a tight rein on selection, offering only proven winners. The prestige lineup includes classics such as White Shoulders, Yves Saint Laurent's Opium and Christian Dior's Poison, with prices about $5 to $10 less than at department stores, according to the company.
Instead of selling a wide variety of knockoffs, Arbor sticks with the Parfums de Coeur and Lady In Red brands. Parfums de Coeur's U You, a CK One knockoff, is prominently displayed to tap into the CK One frenzy. A beauty adviser--trained at vendor and internal Arbor schools--is positioned in the department in all stores during most open hours. The advisers are also responsible for ordering and housekeeping in the departments.Arbor's tight control of its business is one reason local experts think it outlasted Perry. The loss of the Perry name ends a 38-year history for the drug firm.
But Perry's new owner is not conceding the race. Rite Aid officials have made it clear that they plan to make beauty a major focus in future stores. Still, it's a precarious time for Rite Aid, as its stores have been in disarray during the transition.
Meanwhile, other retailers are scrambling for its shoppers. Meijer, a local hypermarket-style mass merchant, is offering $10 off any new or transferred prescription.
Kmart recently ran an ad that read, "Perry Drugs has changed. Change for the Better. Change to Kmart." But Arbor may be the biggest winner in the market's shakeout, especially as the chain continues to open new units. Said one local expert, "People in Detroit still want to shop at a chain they know, and Arbor is a local business."

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