RITE AID: TAKING A BIGGER STAKE IN BEAUTY
Byline: Faye Brookman
NEW YORK — With its proposed buyout of Revco D.S., Rite Aid Corp. is once again buying its way into the beauty business.
Rite Aid, based in Camp Hill, Pa., had already gained beauty expertise with its acquisitions of Wellby Drug and Perry Drug Stores. In its latest move, disclosed last week, Rite Aid announced a $1.8 billion cash and stock deal that will create an $11 billion, 4,500-store chain. Acquiring Revco will solidify Rite Aid as the nation’s largest drug chain in units and put it on a par with Walgreen Co. in terms of revenue.
The deal was driven by Rite Aid’s desire to create a retail entity so powerful that it will be the preferred drugstore chain for insurance companies dealing with third-party prescriptions. The profitability of most drugstore chains has been eroded by the costs of processing the insurance claims. Rite Aid hopes to achieve critical mass in attracting prescription business.
Although Rite Aid’s primary motive was to bolster that business, it will get a bonus in absorbing what many experts consider to be Revco’s unusually well-run beauty department.
Revco, based in Twinsburg, Ohio, operates a tightly merchandised beauty business, including what many industry executives call the best professional nail care presentation in the mass market. The chain’s newer stores sport a look that Revco calls a “boutique” approach to beauty, complete with a service counter, a glass fixture for fragrances and angled aisles that help expose more merchandise.
And since Revco was one of the first drug chains to install scanners in all of its stores in the early Nineties, it has had the benefit of being able to buy cosmetics based on point-of-sale data. That technology has helped Revco push beauty sales to almost 7 percent of total volume, according to industry estimates. That’s well above the industry average of 4.6 percent. For the fiscal year ended June 8, Revco’s sales totaled $4.4 billion.
Revco’s beauty category has been cultivated over the past several years chiefly by Judy Wray, a highly respected buyer in the mass cosmetics industry. But Wray’s future, along with that of 1,100 other Revco employees, has not been spelled out completely by Rite Aid.
Revco will in effect cease to exist; its stores will be renamed Rite Aid.
Rite Aid, meanwhile, has been working to improve its own cosmetics assortment and presentation in an attempt to build sales throughout the store instead of just at the prescriptions counter.
The chain’s many acquisitions have benefited its beauty strategy. In fact, Rite Aid first dabbled in prestige cosmetics after buying several Wellby units in 1990.
The chain’s executives saw the pulling power of upscale names and started installing glass cases and larger beauty departments in key stores, a format it now calls Beauty Focus. About half of Rite Aid’s 2,700 units were acquired via acquisitions, and roughly 600 to 700 units have the upgraded beauty look.
Whereas the cosmetics category produces less than 5 percent of sales in traditional Rite Aids, the department generates an estimated 7 to 8 percent in the Beauty Focus stores.
The company also learned techniques to improve its cosmetics presentation with last year’s purchase of Perry Drug Stores in Pontiac, Mich. Perry units were known for their larger-than-average cosmetics departments and high levels of service.
Rite Aid is remodeling the Perry stores to fit Rite Aid’s decor package, but is keeping many of Perry’s cosmetics touches, suppliers said.
Finally, Rite Aid has been able to make upscale fragrances work by turning to the Baltimore-based Rita Ann Distributors, which manages the cosmetics areas in the Beauty Focus stores. Industry sources expect Rita Ann will again be tapped to service many Revco units.
At the time the acquisition was announced, Revco was undergoing a healing process, after emerging from bankruptcy protection in 1992. Money was being pumped into remodeling the stores and rebuilding the chain’s image.
In a news conference following the acquisition announcement, Rite Aid chairman and chief executive Martin Grass said about 300 stores probably will be closed in spring 1996 in markets where Revco and Rite Aid overlap — mostly in Ohio. Grass said he does not expect antitrust obstacles to impede the purchase.
The Rite Aid and Revco deal is the latest in the ongoing consolidation of the chain drugstore business. Earlier this year, Rite Aid purchased Perry, and last year’s mergers included Thrifty with PayLess, as well as Thrift Drug’s purchase of Kerr Drug. Revco itself was the buyer in 1994 when it purchased Hook/SupeRx.
In some markets, such as New Jersey, stores that were originally SupeRx and then changed to Revco in the last year will have to change their signs again — to Rite Aid.
In the midst of the consolidation, Genovese Drug Stores is attempting to prove there is still room in the market for strong regional players. The chain, based in Melville, N.Y., opened its second Manhattan unit on Nov. 29 in a 6,500-square-foot former Woolworth site on Eighth Street and University Place. Genovese’s first Manhattan site bowed in 1993 on the Upper East Side, on Second Avenue at 68th Street.
“We think this is going to be a really good store for us because it’s a true neighborhood like we’re used to serving on Long Island,” said Leonard Genovese, president and chairman.
Beauty is the first department a shopper sees upon entering the store. Industry sources estimated cosmetics and fragrances will contribute about 9 percent of total sales, or around $600,000, of the expected overall volume of $6 million to $7 million in the unit’s first year.
The centerpiece of the department is Ultima II, which is now available on a direct basis to 16 Genovese Drug Stores. Genovese is the only chain buying Ultima II — once strictly a department store brand — directly on a large-scale basis.
Ultima II executives confirmed they have initiated a test program with Genovese to “determine the reception of Ultima II in high-traffic stores with strengthened service levels.”
Ultima II commands the majority of space in the glass counter area, which also includes prestige and mass scents such as Elizabeth Arden’s Sunflowers, Christian Dior’s Poison — both obtained through secondary sources — and Coty’s Vanilla Fields and Truly Lace.
One aisle is currently devoted entirely to holiday gift sets, including offerings from Truly Lace, Coty’s Exclamation, Pierre Cardin and Revlon’s Lasting. The cosmetics peg wall offerings include a large array from Revlon — featuring the line extensions to ColorStay — plus Almay, L’Oreal, Physicians Formula and Lissee. The store also sells the new Black Opal line of ethnic cosmetics, as well as Pavion’s Wet ‘n’ Wild budget brand. In nail care, the department comprises Orly, Pro 10, Cutex, DeMert, Jonel, Nailene and Kiss.
Skin care is broken out into treatment and body categories. In treatment, Genovese stocks Cabot, Naturistics, Almay, Formula 405, Doak, Plenitude and Lubriderm. The body assortment includes Vaseline Intensive Care, Naturistics and Lubriderm.
There is an aromatherapy area comprising Yardley, Cabot Marine Therapy and Sinclair and Valentine. The bath assortment is highlighted by products from Beaute, Ben Rickert and Sarah Michaels.
Several suppliers, including Revlon and Maybelline, had employees handing out samples and performing makeovers during the grand opening.
The new Genovese will compete with a nearby Ricky’s and with Rite Aid — which, along with CVS, is planning several new stores in Manhattan, lately one of the most intense battlegrounds for drugstore chains.
Genovese is also planning a third unit in Manhattan at an unnamed location, according to chain executives.