In Orlando, CVS withdrew plans for a store that would have replaced more than two dozen Vietnamese businesses when city planners imposed design restrictions. "Every environment is challenging," says Todd Andrews, director of corporate communications for Woonsocket, R.I.-based CVS Corp. The company has faced similar real estate problems in New York and Chicago, he says.
CVS is biding its time for the moment with a modest presence in northwest Florida and a handful of stores in Orlando, Fort Lauderdale and the Tampa area. But the company's long-term plans in Florida are much more ambitious. "We hope to quite logically move down the Florida peninsula and increase our store base considerably," says Andrews.
Why is CVS so intent on the Florida market? "Demographics," says Andrews. By 2015, Florida's 50-and-older population is projected to reach more than 8.2 million residents, 42.3% of the state's total, according to the University of Florida's Bureau of Economic and Business Research. That's up from about 34.1% in 1999.
A prime market
Not surprisingly, the 50-plus demographic is the prime age group for prescription drugs. A recent study by Express Scripts, a healthcare management company, found that 47.1% of prescriptions are filled for those 50 and older, with half of those prescriptions going to people 50 to 59. Babies, children, teens and young adults in their 20s together account for only 17.8% of prescriptions.
But there's plenty of competition for that market: Mass-merchandise and grocery stores are setting up pharmacies, and two big chains, Eckerd and Walgreens, are well entrenched in the state -- at least for the moment. Many expect CVS ultimately will decide to grow by acquiring the troubled competitor in the market -- Eckerd, for many years Florida's leading drugstore chain.
Acquiring Eckerd would be a big deal for CVS to swallow but would provide CVS with its best opportunity for an easy entre into Florida if regulators didn't object. "When you're late to a market, some of those nice corners are already taken," says Erik Gordon, research director of the Center for Retailing at the University of Florida. "Geographically, Eckerd-CVS might not be a bad fit."
Both Eckerd and its parent company, J.C. Penney Co., are hurting financially. J.C. Penney's department store unit is squeezed between mass merchandisers such as Wal-Mart and high-end retailers like Nordstrom and Neiman Marcus. Penney's department stores eked out a profit in 2000, but Eckerd is a different story: The chain had modest sales growth of 5.3%, but restructuring charges, inventory adjustments and other charges led to an
operating loss of $76 million in 2000, down sharply from a $183 million operating profit in 1999 and $254 million in 1998.
Eckerd, with drugstores in 20 states, closed 289 stores last year and took an $111 million charge.
Eckerd's biggest problem: The drugstore business these days is as much about selling general merchandise as it is about filling prescriptions. And at Eckerd, sales of high-margin non-pharmacy items -- everything from laundry detergent to light bulbs -- have lagged.
The chain has responded with bolder, more colorful advertising and is reconfiguring its stores -- for one, by stacking products such as soda, paper towels and racks of greeting cards in aisles leading to the pharmacy.
The tactic shows promise: Eckerd Chairman and CEO Wayne Harris, a former Grand Union and Kroger executive whom the company recruited last fall, told analysts this summer that sales of non-pharmacy items in reconfigured stores are up about 10%. Eckerd is speeding up its remodeling campaign, and the company will overhaul 600 stores this year instead of the 450 it had planned.
On every corner
Meanwhile, as Eckerd struggles to right itself, the state's third big competitor, Walgreens, continues the methodical, impressive push into Florida it put into high gear in the 1980s. As of this summer, Walgreens had 527 Florida stores -- more stores than in any other state -- compared to 575 Eckerds.
Walgreens plans to open about 44 more stores this year along with a new distribution center in West Palm Beach. By contrast, Eckerd plans to open only a handful of stores for the remainder of the year. By 2004, Walgreens expects to have 700 Florida stores. Eckerd will only say that it will "grow as each state and each community grows."
Unlike many retailers, Walgreens doesn't grow by buying up competitors. The company has spent more than $1.6 billion on land nationwide over the past several years and plans to spend about $1.5 billion this year and next to build the chain. Walgreens, with some 3,444 stores in 43 states and Puerto Rico, is focusing heavily on the Sun Belt in its plan to grow to 6,000 stores nationwide by 2010.
What's next? Walgreens' heft and the company's momentum in Florida make it an unlikely acquisition target for CVS. As for Eckerd, company executives responded in writing to questions about a possible sale by saying the company is focusing on restoring profitability. "The company cannot elaborate any further on the continuing speculation within the investment industry," it says.
That's hardly a ringing declaration of intent to remain independent. Howard Davidowitz, chairman of Davidowitz & Associates, a New York retail consulting firm, thinks J.C. Penney would consider selling the pharmacy chain in order to fund a turnaround for its department stores. "I think that Penney is going to require investing a lot of money in their own business." But, he says, "Eckerd cannot consider selling until they get their act together."
At CVS, Andrews refuses to comment specifically on Eckerd but says the company is open to growth-by-acquisition. "We're always looking," he says, but "an acquisition would have to make sense from a business standpoint and be accretive to earnings." Translation: We'll be interested when Eckerd stops losing money.
The "New" Corner Drugstore
In the late 1950s, Eckerd drugstore founder Jack Eckerd made a handshake deal with Publix Super Markets founder George Jenkins to open Eckerd drugstores alongside Publix grocery stores in strip shopping centers. As Florida boomed in the 1960s, '70s and '80s, shopping centers anchored with a Publix on one end and an Eckerd on the other sprouted throughout the state.
Fast forward to 2001. Eckerd and other drugstore chains are abandoning shopping center locations and instead building free-standing stores on the corners of busy intersections. Why the move? Drugstores have piggybacked a convenience-store/general merchandise business on top of their traditional trade in prescription drugs.
Being in a strip center next to a grocery store meant customers would do all their non-prescription shopping at the grocer and swing by the drugstore only for prescriptions. In moving to corner locations, the drugstore chains are hoping to make more non-pharmacy sales. The trend to corner locations "is not going to reverse," says Erik Gordon, research director for the University of Florida's Center for Retailing.
Corner locations also offer drugstores the chance to appeal to customers in a number of ways:
Drive-through windows. Customers can pick up prescriptions without parking and going into the store.
Parking. In a strip center, customers can park only near the front of the store. At a free-standing location, there's convenient parking on three sides.
Marketing. A big, bold corner drugstore sign is easy to see from a distance.
Larger stores. New stores also mean larger stores with more non-pharmacy merchandise. Most new corner drugstores are 10,000 square feet to 14,000 square feet, several thousand square feet larger than most strip center and mall locations.