Eckerd Corporation
Address:
8333 Bryan Dairy Road
Largo, Florida 33777
U.S.A.
Telephone: (727) 395-6000
Toll Free: 800-325-3737
Fax: (727) 395-7934
http://www.eckerd.com
Statistics:
Wholly Owned Subsidiary of J.C. Penney Company, Inc.
Incorporated: 1961 as Eckerd Drugs of Florida
Employees: 55,000
Sales: $10.33 billion (1998)
NAIC: 446110 Pharmacies & Drug Stores
Company Perspectives:
The executives, store managers, sales associates, pharmacists, and many others who have made Eckerd Corporation a success are part of a proud tradition of American mercantile enterprise. Like their forebears, the merchants of Eckerd are proof that success is based upon innovation, adaptability, initiative, and teamwork. But most of all, Eckerd has thrived because its merchants and pharmacists have always put the customer first. They listen carefully to their customers, learn what they need, and provide them with the most up-to-date, cost-effective, high-quality merchandise and services.
Key Dates:
1898: J. Milton Eckerd launches one of the country's first drugstore chains in Erie, Pennsylvania.
1912: Eckerd sells his Erie business to two of his sons and opens a new cut-rate drugstore in Wilmington, Delaware.
1949: In Erie, Jack Eckerd opens QuikChek, the first self-service drugstore on the East Coast.
1952: Eckerd purchases three struggling drugstores on Florida's Gulf Coast and turns them around.
1959: Eckerd begins partnership with Publix grocery chain.
1961: Company is taken public as Eckerd Drugs of Florida.
1970: Company is renamed Jack Eckerd Corporation; drugstore chains in Louisiana, Texas, and Florida are acquired.
1974: Stewart Turley is named CEO of the company.
1977: Eckerd North Carolina is acquired in largest merger in drugstore history; the Eckerd chain now includes 766 units and is the second largest in the country.
1985: Dart Group Corporation launches a hostile takeover of the company.
1986: Dart's takeover attempt is fended off through a management-led leveraged buyout that returns the company to private hands.
1990: Company acquires 220 Revco drugstores, primarily in Texas.
1992: Major restructuring cuts about 600 jobs and reduces the number of divisions from eight to six.
1993: Company returns to public ownership with the sale of 15 percent of its stock and changes its name to Eckerd Corporation.
1996: Frank Newman is named company CEO.
1997: Company is acquired by J.C. Penney Company, Inc.; Penney's Thrift Drug unit is merged into Eckerd, which becomes a wholly owned subsidiary of Penney.
1999: Genovese Drug Stores, a 141-unit chain based in New York, is acquired.
Company History:
Eckerd Corporation operates a chain of about 2,900 drug stores located in 20 states in the Northeast, Southeast, and Sunbelt. With its acquisition by J.C. Penney Company, Inc. in February 1997, Eckerd grew substantially through its absorption of the existing drugstores operations of its new parent--vaulting the chain into the number four position among pharmacy chains, trailing only Walgreen Co., CVS Corporation, and Rite Aid Corporation. About 2,000 of the units in the chain are located in strip centers, but the company is shifting toward freestanding locations featuring drive-through pharmacy windows and larger layouts of about 11,000 square feet. Revenues at Eckerd units are derived in large part from the sale of prescriptions and over-the-counter medications; the stores also sell general merchandise, including health and beauty items, ready-to-eat food and beverages, and greeting cards. Photofinishing services are offered at most units, and 850 outlets operate minilabs with one-hour Express Photo centers. The company owns a pharmacy benefits management service, called Eckerd Health Services (EHS), which designs and manages comprehensive prescription benefit plans for employers and HMOs; EHS is also one of the largest retail mail-order pharmacies in the nation.
Cut-Rate Beginnings
Eckerd Corporation traces its history to the days when J. Milton Eckerd launched one of the country's first drugstore chains in Erie, Pennsylvania. Eckerd was born in Mechanicsburg, Pennsylvania, in 1871 and began working as an assistant to a drug wholesaler as a young man. This wholesaler was on the cutting edge of drugstore retailing, in that he was supplying drugstores with mass-produced prescription and over-the-counter drugs; previously, local pharmacies mixed their own medicines in batches. Eckerd's employer believed that a cut-rate drugstore could prove to be a profitable venture by buying supplies in bulk from wholesalers at discount rates and thereby offering lower prices than competing drugstores. He encouraged Eckerd to open such a store.
In September 1898 Eckerd became one of the pioneers of the discount drugstore industry. That month he opened a store in Erie using $600 in savings and a few thousand dollars in credit from his now former employer. The discount outlet soon found success offering over-the-counter medicines such as the newly invented Aspirin, personal hygiene items such as Listerine, and products usually found in grocery stores, including candy and tobacco. Although retailers at the turn of the century typically were barred from operating on weekends, Eckerd, because he acted as a pharmacist whose customers might be in need of his products at any time, was able to stay open seven days a week. This enabled him to increase profits at the expense of such retailers as grocers, who could operate only during the week. Within a few years, Eckerd had established his operation as one of the leaders of the region's drugstore sector.
In 1912 Eckerd decided to sell his Erie operation to his sons William and Ken and open a new discount drugstore in Wilmington, Delaware. His choice of location proved auspicious when Wilmington soon became the booming commercial center of the Delaware Valley. Among the innovations introduced by Eckerd at his new location in Delaware was the addition of a store manager to handle the overall operations of the store; this freed pharmacists to concentrate solely on prescription services, whereas before they had to manage the store as well. This practice was soon adopted by most competitors. During the 1920s beauty products became more respectable and upscale women were flocking to department stores to purchase makeup. Eckerd began selling discounted brand name cosmetics, thereby capturing sales from lower-income women. Eckerd also expanded his chain into North Carolina, opening units in Charlotte, Raleigh, and Asheville. By the 1930s Eckerd had become the leading drugstore chain in North Carolina. The North Carolina chain eventually became owned and operated by Ed O'Herron, Sr., while the Wilmington chain was likewise to be controlled by Mitchell Hill; O'Herron and Hill were sons-in-law of J. Milton Eckerd. (William and Ken Eckerd, meanwhile, continued to own the original Erie stores until selling them in the early 1960s.)
Jack Eckerd, youngest son of J. Milton, began working for his father's company during the Great Depression. He started off as the company pilot, flying his father on scouting missions aimed at identifying potential new locations on the East Coast. From that role Jack Eckerd moved on to a position as an Eckerd sales associate in Erie, working closely with his father and older brothers. In this way, he learned the business from the bottom up, despite his father's warning, 'You're going to work longer and harder than anyone else, and you're not going to make too much money.'
1940s and 1950s: Self-Service and the Move to Florida
In 1947 Eckerd encountered the new concept of self-service drugstores at a PayLess store during a trip to California. PayLess was a pioneer in this retailing innovation, which had enabled the regional chain to lower labor costs and offer significant discounts to its customers. Eckerd became convinced of the merits of the new system and returned to Erie in 1949 to open QuikChek, the first self-service drugstore on the East Coast. An instant success, QuikChek had a larger design than conventional drugstores, was systematically laid out to make finding items as easy as possible, and offered greater discounts than other Eckerd stores.
This success, however, also led to customer confusion between the two Eckerd-run drugstore brands in Erie. Jack Eckerd, therefore, decided to venture into an entirely new market. In 1952 he left his father's chain and purchased three struggling drugstores in Tampa and Clearwater, Florida, on the Gulf Coast. Using the self-service concept, he turned the three stores into financial successes. By 1955 Eckerd was running a five-store chain in Florida. The state had been well chosen; it was experiencing a postwar tourism boom and had an increasing population of senior citizen retirees, a prime demographic group for any drugstore chain.
According to friends and family, the Jack Eckerd chain also became successful because of Eckerd's honesty, hard work, dedication, and people-oriented philosophy of management. He told one interviewer, 'I made up my mind I would never do anything, if I could help it, that wasn't in the best interests of the customers, the employees, and the stockholders.' His wife, Ruth, wrote that he could not drive by one of his stores without going in to talk to the employees. He himself said that understanding employees and making decisions based on fairness were essential to his success. He called his employees his company's greatest asset.
Eckerd tried to keep in touch with employees and listen to their suggestions because they were the ones who came in contact with the customers. To foster a sense of family, Eckerd sent personally signed birthday cards to all employees throughout the chain, stopping this practice only when the employee rolls grew to 8,000.
Eckerd drew attention when he successfully challenged Florida's 'fair trade law,' which prohibited retailers from reducing prices below those charged by other retailers in the state. Eckerd successfully argued before the Florida Supreme Court that the law was unconstitutional and that he had the right to provide discounts to increase his share of the market.
Expansion and Diversification: 1959-85
In 1959 Publix markets, Florida's leading grocery chain, offered Eckerd the opportunity to build drugstores next to five of its supermarkets in strip shopping malls in Tampa, Clearwater, and St. Petersburg. Eckerd borrowed $1 million and committed to a 15-year lease on each of the stores. This partnership would eventually lead to the opening of 150 new Eckerd drugstores. Eckerd took his 15-store chain public in 1961 as Eckerd Drugs of Florida. Two years later an Orlando division was established, marking the beginning of a statewide expansion. Also during the early 1960s, the company built a state-of-the-art photofinishing plant in Clearwater to have full control of its photo processing services and thereby ensure consistent quality. In 1965 Eckerd stores introduced two-for-one prints of processed film to enormous success; this innovation was later widely adopted by the photofinishing industry. Another widely copied Eckerd innovation was very popular senior citizens' discounts.
In the late 1960s through the end of the 1970s, Eckerd bought a string of other Southeastern drugstores and participated in the drive to diversify that dominated U.S. business in that era. In 1966 Eckerd bought Old Dominion Candies (which he sold in 1972); in 1968 he purchased Jackson's/Byrons, a 12-unit junior department store chain based in Miami that was renamed J. Byron; and in 1969 he acquired the Gray Security Service, an installer of alarm and security systems, and the food service supplier Kurman Company. In 1970 Eckerd Drugs of Florida was renamed Jack Eckerd Corporation. The company's nondrugstore subsidiaries eventually were organized within a new corporate entity called Jack Eckerd Allied Company, which was headed by Stewart Turley, who was named CEO of Eckerd Drugs in 1974. Jack Eckerd Corporation expanded again in 1973 with the opening of 12 Eckerd Optical Centers, which offered prescription eyeglass services. Within two years there were more than 50 of the centers, which were being supplied by two optical laboratories. Around this same time, Turley also moved to rein in the company's nondrugstore operations through the divestment of several subsidiaries, including Kurman Company and Gray Security, both sold in 1976.
On the drugstore side, Jack Eckerd Corporation in 1970 bought Louisiana-based Brown's Thrift City Wholesale Drugs, Houston-based Mading-Dugan Drugs, and Georgia-based Galaxy Drugs. The company also purchased Delaware-based Eckerd Drugs Eastern Inc. (from Milt Hill, J. Milton Eckerd's grandson) and Texas-based Ward Cut-Rate Drug in 1973. In 1977 Turley completed the consolidation of all Eckerd drugstores within Jack Eckerd Corporation through the acquisition of Eckerd North Carolina, the chain that had been founded in Charlotte by J. Milton Eckerd and then sold to Eckerd's son-in-law Ed O'Herron, Sr., in the 1930s. This merger was at the time the largest in drugstore history, increased the number of Eckerd stores to 766, and vaulted the company into the number two position among drugstore chains.
During the 1970s, Jack Eckerd made a number of unsuccessful bids for public office. He lost his first race when he ran in a primary election for governor of Florida in 1970. In 1974 he won the Republican nomination to run for the U.S. Senate but lost the election. Eckerd ran for governor again in 1979 but once again lost his bid for elected office. Eckerd held public office only when President Gerald Ford named him head of the General Services Administration (GSA) in 1975. During his tenure at the GSA, Eckerd turned over chairmanship of the company to Turley. Eckerd returned to the company as a member of its board in 1979.
In 1980 Jack Eckerd Corporation strengthened its presence in Texas by acquiring Sav-X drugstores of Abilene and 40 Sommers Drug Stores. The following year the company acquired 19 drugstores from the Thrift Drugs unit of J.C. Penney. Eckerd also entered the video market through the 1980 acquisition of American Home Video, which owned the Video Concepts stores. Eckerd sold both the video concern and the J. Byron stores in 1985 as the financial performance of the company's nondrugstore operations began to turn sour.
Jack Eckerd became a hero in the Christian press in the mid-1980s when he ordered Playboy, Penthouse, and Hustler magazines and other 'questionable books' off the shelves of Eckerd Drugs stores, calling them 'America's family drugstores.' According to the Christian Herald, Eckerd also led a drive, through lobbying and public pressure, to convince other drugstore chains to 'stop selling pornography.'
Return to Private Ownership: 1986-93
The hostile takeover craze of the 1980s affected Jack Eckerd Corporation as well--the company being vulnerable because of its strong market position and weak stock price. The Dart Group Corporation launched a hostile takeover of Eckerd in 1985 but the attempt was fended off when Jack Eckerd sold his shares in the company to a management investment group in a leveraged buyout. Merrill Lynch Capital Partners negotiated the leveraged buyout (LBO) of the Eckerd Drugs company by its managers for $1.58 billion. The buyout left Merrill Lynch and affiliates with 58 percent share of the company, and Eckerd Drugs was once again a private company, retaining the name Jack Eckerd Corporation. Jack Eckerd's sale of his shares brought him $36 million.
The management buyout brought a new look to the drug chain, as the company spent $20 million a year to remodel more than 250 stores each year. The late 1980s also brought some massive closings and purchases in a continuing effort to reduce the more than $1 billion in debt the company had incurred in the LBO. Jack Eckerd Corporation shut down 45 of its least profitable stores and sold 11 of its Tulsa, Oklahoma stores. On the other side of the ledger, however, it bought 32 Shoppers Drug Mart Stores located in Florida in 1986 and opened 50 new stores. The company also expanded its optical and photofinishing services by adding 79 instore one-hour Express Photo minilabs and more than 20 Visionworks optical superstores. In 1989 Eckerd acquired Insta-Care Pharmacy Services, which provided prescription drugs and medical consulting services to long-term healthcare facilities in six states.
When Revco drugs declared bankruptcy in 1990, Eckerd immediately acquired 220 of its stores (primarily located in Texas) and engaged in protracted negotiations to acquire the remaining stores in the Ohio-based chain. Eckerd chairman Turley saw Revco and Eckerd as very compatible, given the similarity of size and the fact that geographically they complemented each other: half of Revco's stores were located in states in which Eckerd operated, but the other half were located in the Midwest, which would extend Eckerd's market. The merger of Revco and Eckerd would also have given Eckerd more clout in the prescription market. With competition tight for the third-party payment plans of government, unions, and company medical plans, volume was the key to prescription profits. If Eckerd became the largest drugstore chain, it could offer lower prices and become more attractive to third-party clients.
Eckerd's offer for Revco was worth almost $779 million, pushing challenger Rite Aid out of the running. Most creditors were now backing Eckerd's plan, which also called for turning Revco headquarters into a regional office and closing about 250 Revco stores. A last-minute reorganization plan by Revco, however, promised to save thousands of jobs and keep most Revco stores open, quashing Eckerd's bid in 1991. Revco agreed to pay Eckerd $7.5 million to cover the expenses generated by the bidding process.
In the early 1990s the managed care revolution continued and drugstores felt additional competitive pressures from discount retailers such as Wal-Mart Stores, Inc. and Kmart Corporation, which were carrying more health and beauty aids that were traditionally bought at drugstores. The drugstores had already lost business to supermarkets and were being forced to become more like corner convenience stores by carrying more foods and beverages. In 1992 Eckerd launched plans to increase its cosmetics and fragrance sales by adding new upscale product lines. Eckerd, as well as other chain drugstores, also began offering free home delivery for elderly customers and young parents.
Still burdened by debt, Eckerd was struggling to return to profitability, losing $300 million between 1987 and 1992; in four of those years operating profits did not even cover interest expenses. In 1992 the company consolidated its corporate structure in a major restructuring, reducing operating regions from eight to six, and cutting about 600 headquarters and field office jobs to reduce the number of bureaucratic layers between stores and top management. In the spring of 1993, Eckerd negotiated a refinancing deal with two banks, allowing it to simplify its debt structure and save considerably on interest and dividend costs. The company announced that the refinancing also would support expansion plans.
By 1993 Jack Eckerd Corporation was returning to financial health. To further reduce its debt and lay the groundwork for further expansion, the company returned to the New York Stock Exchange in August 1993 as a publicly traded company under a new name: Eckerd Corporation. Through an initial public offering (IPO) 15 percent of company stock was sold to the public, marking the beginning of the firm's second period of public ownership.
As of 1993 Eckerd owned 1,692 stores in 13 states. More than 540 Eckerd drugstores were located in Florida, 475 in Texas, almost 200 each in North Carolina and Georgia, more than 100 in Louisiana, and fewer than 100 in South Carolina. There were also Eckerd stores scattered throughout Tennessee, Mississippi, Oklahoma, New Jersey, Alabama, Delaware, and Maryland. Express Photo shops were located in 405 of these stores.
Mid-to-Late 1990s: From Acquirer to Acquiree
Eckerd returned to profitability in 1994, posting net income of $41.4 million on sales of $4.19 billion. That year the company sold its vision care operations, which at the time consisted of 47 Visionworks optical superstores and 29 Eckerd Optical Centers, to a management-led investment group. Eckerd also divested its Insta-Care unit, selling the institutional pharmacy business to Beverly Enterprises Inc. for about $112 million. These moves were designed to focus the company further on its core retail drugstore operations.
The pressures on drugstore companies to enlarge themselves through mergers continued throughout the 1990s. The industry's razor-thin profit margins encouraged firms to grow ever larger to buy pharmaceuticals and other products at greater quantities at lower prices and to pass the savings on to their customers--in the end increasing sales and earnings. Eckerd participated in this trend by buying North Carolina-based Crown Drugs and its 19 stores in 1994 and by purchasing the following year most of the assets of Rite Aid's Florida operations, including 37 drugstores and the prescription lists, inventory, and fixtures from another 72 Rite Aid stores slated for closure. In May 1995 the company formed a pharmacy benefits management service called Eckerd Health Services (EHS). In addition to designing and managing comprehensive prescription benefit plans for employers and HMOs, Clearwater-based EHS also launched a mail-order pharmacy operation in 1996. A mail-order facility was soon able to handle up to 2,500 prescriptions per day and within a few years EHS had gained a position as one of the largest retail mail-order pharmacies in the nation.
In 1996 Eckerd's president, Frank Newman, was named CEO as well, with Turley remaining as chairman. Before joining Eckerd as president in 1993, Newman had extensive experience at a number of retailers, including F.W. Woolworth & Co. and F & M Distributors Inc., a discount seller of health and beauty aids. A key development in the Newman-led era was the move away from locations in strip centers, which typically were anchored by supermarkets--most of which by now had pharmacies and were thus in direct competition with drugstores. Eckerd began opening new units and relocating existing units in freestanding locations. These larger outlets--of about 11,000 square feet--were able to offer an enhanced selection of convenience foods as well as adding drive-through pharmacy windows. Stores located from strip centers to freestanding locations typically saw their sales increase by 30 percent.
Eckerd continued to seek out acquisition targets; it had long coveted the Thrift Drug chain owned by J.C. Penney. The department store retailer rejected Eckerd's overtures and began building its drugstore unit through the acquisition of North Carolina-based Kerr Drug Stores in 1995 for $75 million and New York-based, 270-unit Fay's Drug in October 1996 for $285 million. Also in October 1996 Penney agreed to acquire 190 Rite Aid drugstores in North and South Carolina. The following month, however, Penney and Eckerd reached an agreement whereby the department store operator would acquire the drugstore specialist. To gain antitrust approval from the Federal Trade Commission, Penney was forced to sell 164 Rite Aid and Kerr stores in the Carolinas; in early 1997 it sold the units to a former member of Thrift management and others for $75 million. This paved the way for the consummation of the Eckerd acquisition, which occurred in February 1997 with Penney paying $2.5 billion in cash and assuming Eckerd's $760 million debt. Penney's Thrift unit was merged into Eckerd, which became a wholly owned subsidiary of Penney. Eckerd thereby added to its chain about 1,100 drugstores on the East Coast and in parts of the Midwest, with concentrations in New Jersey and Pennsylvania; all of the Penney drugstores were eventually rebranded under the Eckerd name. By the end of 1997 Eckerd was a chain of 2,778 stores with sales of $9.66 billion, making the company the number four drugstore operator in the nation, behind Walgreen, CVS, and Rite Aid. Growth that year was aided by the purchase of 114 Revco stores in Virginia.
In the late 1990s Eckerd continued to concentrate on the steady conversion of the chain from strip mall to freestanding locations. During 1998 Eckerd opened 220 stores, 175 of which were relocations. The company was expanding its photofinishing services by adding one-hour Express Photo centers to more of its drugstores; 850 units had the centers by the end of 1998, with about 320 opened in 1999 and 300 more slated for 2000. Synergies were also being sought between Eckerd and its parent. The drugstores began accepting the J.C. Penney credit card, and Penney catalog desks began to be added to Eckerd stores. The chain's sales increased to $10.33 billion in 1998, with comparable-store sales growing 9.2 percent.
In March 1999 Eckerd acquired Genovese Drug Stores, a 141-unit chain based in New York with annual sales of about $800 million. The purchase made Eckerd the number one drugstore operator in the state of New York. The Genovese stores soon were converted to the Eckerd banner. By late 1999 the Eckerd chain had nearly 3,000 stores and planned for an additional 575 new and relocated stores by 2001. Looking further down the road, Eckerd planned to convert as many as 2,000 strip center units to freestanding outlets by the end of the first decade of the 21st century. The company also was continuing its history of innovation with the testing of an automated prescription dispensing system. J.C. Penney, meanwhile, was preparing to take Eckerd public once again through the sale of about 20 percent of the company's stock through an early 2000 IPO.
Principal Competitors: Albertson's, Inc.; CVS Corporation; Drug Emporium, Inc.; Food Lion, Inc.; H.E. Butt Grocery Co.; Kmart Corporation; The Kroger Company; Phar-Mor, Inc.; Publix Super Markets, Inc.; Rite Aid Corporation; Safeway Inc.; Walgreen Co.; Wal-Mart Stores, Inc.; Winn-Dixie Stores, Inc.
Further Reading:
Bradford, Stacey L., 'Eckerd: Pennies from Hell?,' Financial World, December 16, 1996, p. 24.
Clancy, Carole, 'Wall Street Finds Itself Getting Hooked on Eckerd,' Tampa Bay Business Journal, August 18, 1995, p. 1.
DeGeorge, Gail, 'A Drugstore Cowboy Rides to Revco's Rescue,' Business Week, January 27, 1992, p. 35.
DeGeorge, Gail, and Stephanie Anderson, 'Partly Filled, Fully Billed,' Business Week, February 23, 1998, p. 46.
DeTorok, Judy, 'Jack Eckerd,' Tampa Bay Business, January 10-16, 1988, p. S5.
'Eckerd/Genovese Merger Closes,' Drug Store News, March 15, 1999, pp. 1, 3.
Fleming, Harris, Jr., 'A Pharmacist's Pharmacy,' Drug Topics, April 19, 1999, pp. 55-56, 58.
Hagy, James, 'A Miracle Drug for Jack Eckerd,' Florida Trend, February 1992, pp. 49-51.
Kimelman, John, 'Eckerd: A Cheaper Prescription,' Financial World, May 24, 1994, p. 18.
Lee, Louise, 'Penney Aims for Growth in Drug Sales, Shopper Convenience in Eckerd Deal,' Wall Street Journal, November 5, 1996, p. A3.
The Merchants and Medicines of Eckerd: Yesterday, Today, Tomorrow, Clearwater, Fla.: Eckerd Corporation, [n.d.].
Muirhead, Greg, 'Monster Merger: J.C. Penney in $3.3 Billion Move to Buy Eckerd Chain,' Drug Topics, November 18, 1996, pp. 14, 16.
Sigo, Shelly, 'Proxies in the Mail, Eckerd IPO on Track for January,' Tampa Bay Business Journal, October 18, 1999.
Smith, Katherine Snow, 'Eckerd's Rx to Fight the Discount Habit,' Tampa Bay Business Journal, April 29, 1994, p. 1.
------, 'New Eckerd President Brings Reputation for Vision,' Tampa Bay Business Journal, April 22, 1994, p. 14.
Source: International Directory of Company Histories, Vol. 32. St. James Press, 2000.
