Shutdowns Not Likely With $4B Eckerd Sale

"There doesn't appear to be any significant overlap with existing stores," Tim Lyons, a spokesman for JCPenney Co. Inc., tells GlobeSt.com. In more jeopardy are the stores in the pipeline. Texas was in the midst of gaining Eckerd locations when the Plano, TX-based JCPenney put the chain on the block. The pipeline is "one of the issues that has to be worked out," he says, adding that the weekend talks dragged out until 3 a.m. just to get a stack of contracts signed to open the door for yesterday's announcement.

With the dust settled on the announcement, the gist of the deal that the Woonsocket, RI-based CVS Corp. will pay close to $2.2 billion for 1,260 Eckerd drug stores in the South and the Quebec-headquartered Jean Coutu Group will pay $2.4 billion for 1,539 stores in the Northeast and Eckerd's headquarters at 8333 Bryan Dairy Road in Largo, FL. The dual sales are expected to close in June.

CVS is claiming stores primarily in Texas and Florida along with locations in Louisiana, Oklahoma, Mississippi, Arizona, Missouri, Kansas and Alabama, and three distribution centers. Stores most often range from 13,000 sf to 15,000 sf and sit on less than two acres at key intersections that were bought, on the average, for about $1.2 million.

Eckerd last fall started an intense search in Dallas/Fort Worth for land to build a multi-state distribution center rumored to be in the 600,000-sf range, but the plan went cold with the sale talk although the promise was made to renew the search in early 2004. So far, it's still quiet on that front.

The CVS portfolio will jump to more than 5,000 locations in 36 states and the District of Columbia and push the chain to about 700 more stores than rival, Walgreen Co. of Deerfield, IL. The deal also rolls Eckerd Health Services, which includes a $1 billion mail order business. Under the takeover, the CVS PharmaCare subsidiary and Eckerd's like component will result in CVS winning rights to filling about 13% of the nation's retail prescriptions.

As for the Jean Coutu Group, Canada's second-largest drugstore chain, it will become the fourth-largest operator in North America. The sale shifts most of the chain's revenue generation to the US, with the control of 2,196 stores in the Northeast. In a press release, CEO Michael Coutu said there will be no shutdowns since there is no overlap in the locations of its 333 Brooks Pharmacy stores in seven northeastern states and the to-be-acquired Eckerd sites. The Coutu Group is going into the deal expecting that it will take 12 to 18 months before Eckerd store performances begin to improve. And for the time being, the acquired locations will continue to fly the Eckerd flag.

In making the announcement, Allen Questrom, chairman and CEO of JCPenney, said it plans to focus on its core department store and catalog/Internet business, which "has made tremendous progress over the past three years."

JCPenney and counterpart Sears have been test driving a freestanding store concept in a return to the good old days when Main Street retail was at its heyday. The stores are cropping up in Texas and Utah in select suburbs to put the pros and cons into perspective for freestanding versus mall locations. As of Jan. 31, JCPenney operated 1,020 department stores in the US and Puerto Rico and 58 Renner shops in Brazil. The chain's catalog division, including e-commerce, is considered one of the largest apparel and home furnishing sites on the Internet.