K mart Corp. continued to diversify from its core department-store business yesterday by announcing plans to acquire Pay Less Drug Stores Northwest Inc. for $500 million.
The foray into the drugstore field follows K mart's purchases within the past few months of the Waldenbooks chain and the Home Centers of America hardware-store group, as well as its purchases in recent years of two cafeteria chains.
"We have indicated for some time we wanted to be in the drugstore business, and some research indicated this would be better than a start-up operation," said Robert Brewer, executive vice president for finance at Detroit-based K mart, the nation's second-largest retailer. He said the company was drawn to drugstores because of the general aging of the American population, which K mart believes will increase the market for health-care products.
K mart is looking for that offer it more attractive growth than its basic five-and-dime-store general merchandising operations. All of the fields it has entered in recent years have offered such growth. "General merchandise is growing in the 7 to 9 percent range, but the drugstore industry, the health-care industry, is growing at 10 percent-plus," Brewer said.
"It's part of the trend of K mart to diversify operations into specialty store retailing," said Monroe H. Greenstein, a retail-industry analyst at Bear Stearns. "Clearly, they want a specialty type of retailing. Non-fashion areas, it's pretty clear: drugs, home centers, books, cafeterias."
Pay Less operates 164 drug-stores in Oregon, Washington, California, Idaho and Nevada, making it one of the nation's larger regional drugstore chains. Brewer said K mart plans to expand the chain, first to neighboring states and then perhaps nationally, although he wouldn't rule out the possibility of making additional acquisitions to help Pay Less grow.
Weller said Pay Less has been one of the drugstore industry's best performers in recent years.