NEW YORK — A drugstore chain has to be sharp when its beauty competition includes Bloomingdale’s and Saks Fifth Avenue. Duane Reade, based in Long Island City, N.Y., has stepped up to the challenge.

The 46-store organization, which has almost as many stores in midtown Manhattan as The Gap, is New York’s largest drugstore chain. Only three of its stores are outside Manhattan — one each in the Bronx, Brooklyn and Newark, N.J.

With the kind of foot traffic it generates, it isn’t surprising that Duane Reade is also the most productive retailer on a sales-per-square-foot basis in the entire drugstore industry — by far.

An average 6,300-square-foot Duane Reade store pumps out sales of $1,300 per square foot, according to market estimates. The industry average is $300, according to the National Association of Chain Drugstores.

Among Duane Reade’s local rivals, there is no major competitor in New York that has the same traditional drugstore format. Love’s is primarily a discount drugstore, with pharmacies in about half of its 25 stores. It does $1,200 a square foot in an average 2,000-square-foot store.

The nearest comparable drugstore chain is the Long Island-based Genovese Drug Stores of Melville, N.Y. Its 105 stores include units scattered throughout New York, but only one in Manhattan.

Genovese generates sales of $450 per square in stores that average 10,000 square feet, according to the company’s 1993 annual report.

Duane Reade posts annual total sales estimated at $300 million, making it the 25th largest drugstore chain in the U.S.

Cosmetics, according to manufacturers familiar with the operation, account for 8 percent of total store sales, significantly higher than the industry average of 4.6 percent.

According to cosmetics manufacturers, Duane Reade has learned to efficiently manage inventory and put together the right cosmetics and fragrance assortments to appeal to its New York consumers. The success of its cosmetics category is typical of the entire store, according to vendors in other categories.

However, it is only within the last two years that Duane Reade registered such a lofty beauty volume.

The chain has gone from treating cosmetics as an afterthought to making it a focal point, manufacturers say. Indeed, cosmetics has been a major push for Duane Reade since the chain’s founders sold it two years ago to the Boston-based Bain Capital, an investment firm.

After the acquisition, Bain tapped Bruce Weitz — previously president of Grossman’s Inc., a home center chain based in Braintree, Mass. — to run Duane Reade as chief executive officer.

Two chain drugstore veterans with vast retail and cosmetics experience have joined the chain within the past two years — Gary Charboneau, senior vice president of sales and marketing, who came from CVS in Woonsocket, R.I., and Karen Durham, cosmetics buyer, who was previously with Eckerd Corp. of Largo, Fla.

“[Durham] has streamlined the department to make it efficient while still offering a broad selection,” said David Kronrad, regional sales manager for CCA Industries in East Rutherford, N.J., a health and beauty aids manufacturer.

Duane Reade is looking beyond prestige vendors who won’t sell drugstores directly. The company is searching for alternative sources, such as European manufacturers who might provide products that are unique to American drugstores. The chain also is experimenting with different suppliers in the U.S. — and even with other retailers.

Since April, for example, Duane Reade has been conducting tests with two of its stores and Nature’s Elements, a 26-store chain based in Edgewater, N.J., that sells natural-based bath and body products.

Some 180 square feet of space in each of the two stores — one at 115 West 42nd St., the other at 115 East 14th St. — was turned over to Nature’s Elements for a ministore within a store.

This is considered to be the industry’s first example of a drugstore chain parceling out space in its store for another beauty retailer.

Jan Stuart, president and founder of Nature’s Elements, said it is too early to comment on results, but he expects the concept to have a positive impact on both retailers. After the test concludes in late August, a decision will be made on whether to roll it out to other Duane Reade units, Stuart said.

“Duane Reade’s traffic is phenomenal,” he said, “and this offers them a way to get into the natural category.”

“Bath and body is hot right now,” said Weitz, who pointed out that the presence of Nature’s Elements “should set us apart from the competition.”

New Duane Reade stores also have glass cases housing sharply priced prestige fragrances, such as a 4-oz. Halston Z-14 cologne for men at $28.99 a bottle; a 2.5-oz. eau de toilette of Davidoff’s Cool Water for $33.99, and a 1.7-oz. spray of Elizabeth Arden’s Red Door for $29.99.

The Davidoff and Arden products are priced about $8 below department store levels.

Beyond the glass cases are promotional tables with numerous counter displays. From there, shoppers get to the cosmetics peg wall.

In addition to drugstore standards such as Revlon, L’Oreal, Maybelline, Cover Girl and Max Factor, Duane Reade has made room on its wall for niche brands such as Prestige Cosmetics and Jordana, and ethnic lines such as ColorStyle and Posner Industries.

Duane Reade is poised to become an even bigger player in the mass market beauty arena. Five more stores will open before the end of 1994 with another nine planned to open by the end of next year — all in Manhattan.

A new store was opened in March in the Port Authority Bus Terminal on the West Side.

“I have never seen a store that busy,” said CAA’s Kronrad. “Duane Reade knows how to find the right locations. It is now starting to move into residential areas, and I think there is plenty of potential left in the city.”

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