Dart Drug Corp., in a bid to bolster consumer and employe loyalty, is taking aim at its lackluster image.
Armed with a new management team and the $150 million it hopes to receive through a bond offering announced last week, the 77-drugstore chain has mounted a campaign to clean up its stores and improve its employes' attitude and productivity.
A paramount part of this plan includes the installation of computerized checkout systems to reduce what has been one of the chain's most chronic sources of complaints: slow cashiers who have an understandably hard time keeping track of 300 to 400 items that go on sale each week.
At the same time, the company plans to open eight to 10 new stores a year, with many of them in the District of Columbia, an area it has previously deemphasized in favor of the suburbs.
"We want to be the area's No. 1 drugstore," said Dart Chairman Stephen J. Hansbrough. "We see Dart as being the only truly locally owned chain in the Washington area," he added, noting that Peoples Drug Stores Inc. was bought two years ago by a Canadian conglomerate, while Gray Drug Fair was purchased five years ago by the Cleveland-based Sherwin-Williams Co.
"We can't be locally owned and not be in Washington itself . . . . We just want to do good and be liked right here where we live."
Their race to be liked is tight. Depending on which survey is used, Dart is either the area's No. 1 or No. 2 volume-getter, vying with Peoples for the top ranking. Together, both ring up more than half of the dollars spent at area drugstores.
Founded by Herbert H. Haft 32 years ago, Dart was spun off from the Haft's Dart Group Corp. (then called Dart Drug Corp.) two years ago, with the drugstore management buying the chain for $160 million.
The buyout, leveraged primarily through a $160 million loan from General Electric Credit Corp., left the chain heavily in debt, leading the chain to post a $2.6 million loss on $259.9 million of sales for its fiscal year that ended July 31.
That represented the chain's first loss in four years.
The buyout also burdened the chain with stores that had been largely ignored by the Haft management since the early 1980s, when the Haft family was busy turning its attention to new business endeavors, including Crown Books Corp. and Trak Auto Corp.
For the past two years, Dart officials have been trying to tackle the chain's problems one by one. Inventories to Rise
For one thing, they have studiously tried to increase their inventory, particularly of the items that are on sale each week, in order to cut down on the high number of complaints that the stores were chronically out of stock.
Additionally, the chain implemented a return policy. Until 18 months ago, the chain did not permit customers to return unwanted or defective goods.
The transition from a subsidiary of Haft's Dart Group Corp. to a privately held company was made even more difficult than usual as a result of an internal struggle between Hansbrough and Vice Chairman Joseph H. Santarlasci Jr. on the one side, and Alvin Towle, whom the Hafts had brought in as the drugstore chairman shortly before the chain was sold.
Towle was unavailable for comment, but Hansbrough and Santarlasci said that disputes centered on just how the chain should grow: Should it replace its traditional low-cost Sunday newspaper ads listing the latest sales items with a more expensive, glossy flyer to get more customers to their stores? Should it place more emphasis on its deep-discount "Total Plus" stores in Richmond as it prepares to take the chain national? Should it keep to the large stores Dart has been known for and not open dramatically smaller drugstores in downtown office buildings?
While Hansbrough and Santarlasci repeatedly answered "no" to these questions, Towle apparently disagreed, prompting him to resign last month, in a "mutually amicable" departure that took the drugstore industry by surprise.
The company bought back Towle's 1.5 million shares for $1 apiece. As a result, Hansbrough and Santarlasci together now control 59 percent of the company, according to documents filed recently with the Securities and Exchange Commission.
With the internal battles over, the Dart executives are ready to move forward, eager to complete the $150 million bond offering they announced last week.
The offering of senior debentures, due 2001, will be used to allow the company to retire its existing loan with GE Credit.
"We were going to have to return the entire $110 million GE notes over the next six years," said Santarlasci. (The remaining $50 million from the initial GE loan was for a revolving credit line.)
With the bond offering to be completed later this month, "we don't have to retire any of [our debt] for the next eight years," Santarlasci said.
As a result, Hansbrough said, the bond offering "will give us a financial breather -- time to turn around and make our stores a pleasant place to shop."
Hansbrough said there will be no major renovations of existing stores. "If there is crummy tile," it will remain, he said. But, he added quickly, "at least it will be clean and shiny."
More important to making the shopping at Dart a pleasant experience will be faster checkout service, Hansbrough said.
"With our practice of advertising 300 to 400 sale items a week, it has become a horrendous problem" for cashiers trying to serve customers efficiently, he said.
As a result, the chain will test a computerized checkout system in July in four stores. If successful, "we will expand chainwide as soon as possible," Hansbrough said.
Meanwhile, having targeted 50 sites as possible future Dart sites, the company is aggressively pursing its plans to add eight to 10 stores a year, especially in the District, where two small stores were opened this year. D.C. Market Is Important
"We could go into the suburban stores first and probably become more profitable, but the District of Columbia has to be courted," Hansbrough said.
Until recently, Dart has had a hard time conceiving of new stores in the District, noting that its large-size stores made it uneconomic and almost impossible to find good sites. But Dart has designed small stores -- about one-third the size of its typical drugstores -- to place in downtown office buildings.
Unlike the regular stores, these small units do not place as much emphasis on seasonal goods and housewares, focusing instead on health and beauty aids and a few convenience goods.
The first small store, opened at 1133 20th St. NW a few weeks ago, already is exceeding company expectations -- convincing officials that they should open even more.
With its ambitious computer and expansion plans, it's unlikely Dart will continue to see profits in the short term -- even though the company turned a $1.3 million profit for the five months that ended Dec. 31.
With the costs of the bond offering -- including a one-time $4 million prepayment penalty to GE for retiring its loan early -- Dart expects to see another loss when its fiscal year ends July 31. "Lacking those charges we would make money," Santarlasci said.
Beyond 1986, officials declined to predict when the company would be completely in the black.
"I would never want to stand in front of anyone and say our profits will go up or down," Santarlasci said.
But, he added, "I can say we will pay all of our debts back."