Fred’s Inc. agreement to purchase 865 Rite Aid stores not only helps clear the path for Walgreens Boots Alliance Inc.’s acquisition of Rite Aid Corp., but also could help Fred’s expand more deeply into the profitable beauty category.
Walgreens, which merged with Alliance Boots two years ago, announced plans to buy Rite Aid in October 2015 for $9.5 billion. But federal trade officials put the deal under the microscope. Divesting the stores could pave the for Walgreens Boots Alliance to finalize the transaction. Rite Aid’s store count totals nearly 4,600 stores in 31 states and the District of Columbia.
Fred’s, based in Memphis, operates 647 stores in 15 states with 371 of those operating full-service pharmacies. The stores are best described as a hybrid of discount dollar stores, drugstores and discount stores. The addition of the Rite Aid stores would push Fred’s door count to 1,512, propelling it into a major competitor with the nation’s drug and discount chains. It also gives a green light for growth into other markets where Rite Aid operates.
The $950 million all-cash transaction is subject to Federal Trade Commission approval, as well as the completion of the pending acquisition of Rite Aid by Walgreens Boots Alliance.
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“This will be a transformative event for Fred’s Pharmacy that will accelerate our health care growth strategy through our acquisition of 865 new stores located in highly attractive markets,” said Fred’s chief executive officer Mike Bloom in a statement. “We believe that this transaction will also create tremendous opportunities for both our new and existing front-of-store and pharmacy team members.”
That front of store potential could include trumped up beauty assortments, especially since Rite Aid has elevated its offer over the past five years to become one of the most respected in the industry. And, Fred’s under Bloom who joined the company in January 2015 has the pedigree to boost beauty. With his background in the drugstore business, including a major role building beauty at CVS and Peoples Drug Bloom is well-known in the business to value the people pulling power of cosmetics and health and beauty aids. He also courted many beauty brands to Family Dollar where he was president and chief operating officer prior to joining Fred’s.
The current assortment includes key brands such as L’Oréal, Cover Girl, Neutrogena and SinfulColors. The beauty items in its holiday circular include a makeup brush set priced at $8, an LA Colors Gift set at $5, Coty stocking stuffer fragrances tagged at $3.99, and Beyoncé Pulse fragrance gift set for $15.99. Just because Fred’s is a value retailer, it doesn’t pass up hot beauty trends such as a Profusion Brow Kit priced at $7. Fred’s could provide additional doors for beauty brands hungry for expansion as the mass business has consolidated. Industry expert Allan Mottus agreed there is fertile territory. “Once Fred’s assumes control of the store it will be able to maine the high-level of merchandising established by Judy Wray [Rite Aid’s category manager]. “If so, it should do remarkably well.”
Under the terms of the purchase agreement, Fred’s would continue to operate the acquired stores under the Rite Aid banner during a 24-month transition period. If the FTC requires divestiture of more than the 865 Rite Aid stores currently contemplated by the purchase agreement and Walgreens Boots Alliance agrees to sell such stores, the purchase agreement requires Fred’s to purchase such additional stores.
“We are pleased to have found an experienced pharmacy operator for these stores,” said Walgreens Boots Alliance executive vice chairman and ceo Stefano Pessina. “With this agreement, we are moving ahead with important work necessary to obtain approval of our acquisition of Rite Aid.”