Putting the focus on performance - Statistical Data Included

From the outside looking in, it appears that Eckerd Corp. is not off to an ideal start in 2000. Frank Newman, Eckerd's former chairman, president and chief executive, left the company last month to take the reigns of an online retailer, more.com.

Newman's resignation fell on the heels of disappointing fourth quarter and year-end results, not only for Eckerd but for its parent, J.C. Penney Co. An initial public offering for a tracking stock for Eckerd has been delayed until the second half of the year, the third time the offering has been delayed. And, some analysts say, the stock offering may not happen this year. But that's from the outside looking in.

While Eckerd's brick and mortar may sport some chipped paint--for now--its hallways are filled with a relentless management team. These executives are armed with strategies, initiatives and innovative plans. A solid financial plan is also being developed to re-instill confidence in those who have briefly cocked their heads in doubt toward the future performance of the drug chain.

Currently, John Fesperman, formerly president and chief operating officer of Penney's direct marketing, credit and international units, is leading the chain on an interim basis. Yet, Eckerd's "search for a new chief executive is underway and ongoing. We anticipate making our selection and announcement within the next 90 to 120 days," said Tami Alderman, a chain spokeswoman.

Eckerd's main focus in the first several quarters of 2000 is to improve operating profit. According to Robert Cavanaugh, Eckerd senior vice president and chief financial officer, Eckerd will be on course in 2000 due to several initiatives. Eckerd is slowing its rate of expansion in 2000 to provide some relief on the expense side. Cavanaugh said a total of 200 new and relocated stores are planned in 2000 vs. 266 in 1999. The numbers break down as 50 new stores and 150 relocations.

Cavanaugh also assures that an IPO by the end of the year is bound to happen. "[I'm] confident that our second and third quarter performance will create the platform for a successful fourth quarter IPO," he said. He noted that the 289 stores Eckerd closed will help the company's bottom line in the second quarter.

Improving comparable-store sales in 2000 also is a major Eckerd initiative. To accomplish this goal, Enzo Cerra, senior vice president of merchandising, said the chain may look to increase promotional activity during key seasons and months. For example, extra advertising pages or "theme" events, such as 35-cents sales and "Dollar Days," are planned. During the first half of the year, an incremental coupon book will be launched, and efforts are being made to increase first-to-market offerings.

Eckerd has been busily warehousing and mining point-of-sale data and doing market basket analysis. Much work is still being done to clarify consumer decisions for each sale, but now, Cerra said, "we have a pretty good idea of how the customer thinks and shops our stores and circulars. By mid-second quarter we should see some impact to our promotions."

Eckerd, though, is not alone in its journey towards increased profitability. Dennis Cuff, senior vice president of human resources, said Eckerd and Penney continue to look at additional synergies that can be realized between the two businesses. "We continue to look at synergy and shared services opportunities in every area of the company. In the business sector, we have teams working on cross-merchandising and promotional initiatives, continued expansion of J. C. Penney catalog desks in our stores and the growth of our Internet business," Cuff said.

In support areas such as loss prevention, human resources, training, real estate, non-resale purchasing, information technology and legal, Eckerd teams are working on consolidation of services, as well as shared service initiatives that will produce synergy savings. The consolidation and store closings, Cuff noted, have resulted in the loss of employees, particularly in real estate, store remodeling and store support center (ERC), and also several field staff positions.

For its streamlined infrastructure, Eckerd has several initiatives planned for the year, some that Ken Peterson, senior vice president of information technology, is happy about sharing. "This is an exciting year for us," Peterson said. By summer, Eckerd plans to complete the rollout of its frame relay network to stores, enabling Eckerd to deploy Web-enabled applications to stores as well as to provide store associates access to its growing Intranet. Eckerd is also implementing a new space planning system to improve front-end merchandise planning.

Distribution centers will continue to receive upgrades with Eckerd's warehouse management system, and the pharmacy is set to receive an improved claims management system to enhance work flow and store access to central data. While Eckerd's specific goals to improve pharmacy margins are confidential, Rick Powis, executive vice president of pharmacy services, said that increased generic dispensing through improved communication and win-win incentive programs will contribute to improving these margins. The renegotiation of unacceptable pharmacy reimbursement arrangements with payers will also continue to be implemented.

"We are evaluating managed care contracts very carefully to ensure our prescription reimbursement is appropriate and reasonable for the service involved," Powis said. "We have made numerous system changes and enhancements to proactively review product and reimbursement selection."

Additionally, the Eckerd.com Web site offers consumers options for prescription fulfillment of their choice. One frustration Eckerd--and the industry--has yet to negate is that while technologies improve to free up pharmacists' time, additional complexities in managed care, such as more prior authorizations and more formulary management, seem to take up any free time saved through technologies. "Presently, any time we save through technologies is put back into our pharmacies to improve the quality of patient care as well as quality of life of our associates," Powis said.

Category analysis

Front-end comp-store sales gains were either 1 or 2 percent for most months in 1999, while sales increases for the OTC, cosmetics, consumables and natural care categories were in the mid to high single-digit range. Eckerd experienced an average of 10.7 percent same-store sale increases for the year. Cerra said during 1999 vitamins and nutritionals were expanded in stores and cosmetic peg walls were re-merchandised to accommodate new line introductions such as Oil of Olay and Neutrogena.

While branded products are always within Eckerd's focus, in early 1999 Eckerd embarked upon an effort to significantly grow its proprietary brand business. In 2000, Eckerd will continue to tweak its program, said Jeff Joyner, vice president of brand development for Eckerd. The plan is to grow private brand sales 15 percent this year, primarily driven by new items and programs, plus the roll out of the Eckerd brand to the Genovese stores acquired last year.

"It will be evident that we have a significant number of new items and have entered new product categories. We will also debut major exclusive label product other than Eckerd brand," Joyner said.

The first of these launches was Eckerd's introduction of the Comfy Bath & Body line.

In addition, in 2000 Eckerd will re-launch store-brand food and beverage categories with a larger assortment, new SKU's and greatly improved packaging.

Joyner noted that Eckerd has been working with the Private Label Manufacturers Association on a number of projects that will aid in future development. "These span the gamut from technology improvements to new product categories," Joyner said.

Marketing

Having a plan is only half the battle; getting a brand into the minds of consumers is the other half. Eckerd's mission, as always, is to make customers' busy lives easier and to position itself as their solid partner. Lorraine Coyle, vice president of marketing, plans to capitalize on the momentum of initiatives begun in recent years and to introduce a number of new, proprietary programs designed to reinforce Eckerd's relationship with its core customer.

While departments such as Express Photo Centers offer a full line of professional photo services (more than 1,300 are up and running), new initiatives will also be implemented. Eckerd.com, for example, will bring the convenience of Eckerd home. Eckerd also offers online exclusives, such as "personalized vitamins" and a 30-day supply of vitamin packets tailored to the individual health and lifestyle needs of customers. In-store exclusives, such as Eckerd Award and the Comfy line, "will strengthen the Eckerd brand image," Coyle said.

John Fesperman

Eckerd

Headquarters: Largo, Fla.

1999 sales: $12.4 billion

% change vs. 1998: 20.3 percent

No of units: 2,607 [*]

Average store size: 11,000 square feet

Pharmacy sales: $8.1 billion

% of sales from pharmacy: 65 percent

(*.) Total reflects the planned closing of 289 stores.

Eckerd.com

Eckerd.com was created as a complement to the chain's brick and mortar stores, as well as an extension of the Eckerd brand.

The Eckerd.com site was enhanced and upgraded in November 1999 with the addition of thousands of front-end SKUs, nowsupplementing a small assortment of vitamins, photo and prescriptions services.

Customers are also invited to join Eckerd's Online Club, which provides quarterly previews of the chain's seasonal product mix. Eckerd.com's plan for 2000 is to focus on core competencies, such as product differentiation, unique services and increasing alliances and partnerships that drive traffic to the site. Pharmacy, beauty, photo and wellness will be areas of major emphasis. "This is the year we move to an offensive position in growing our e-business," said one Eckerd executive.

COPYRIGHT 2000 Lebhar-Friedman, Inc.
COPYRIGHT 2000 Gale Group