In a sale that could reinvigorate the competitive drugstore business in the Washington area, Peoples Drug Stores Inc. will be sold for $330 million to a New York-based company that owns the successful CVS drugstore chain.
Peoples, which has been operating in the Washington area for 85 years, will be purchased by the Melville Corp., one of the nation's largest specialty retailers, which also owns Thom McAn shoe stores, Marshalls, a discount chain of clothing stores, and This End Up furniture stores. Melville had $7.5 billion in sales last year.
The 490-store Alexandria-based Peoples chain will become part of Melville's 811-store CVS division, which operates primarily in the Northeast. Peoples's and CVS's almost $3 billion in combined revenue will make Melville owner of the nation's fifth largest drugstore chain.
Melville officials said yesterday that staffing changes have not yet been decided. But it is expected the current top executive team will stay on and that the Peoples name will be retained when the sale is completed in August. Melville executives said there would be changes in the stores' look and image to make them resemble CVS stores.
"It's a strategic fit," said Stanley P. Goldstein, Melville chairman and chief executive officer. "We always thought of Peoples as an appealing chain in a growth market, one that would be very difficult to enter without doing something like this."
The announcement that Imasco Ltd., the Canadian tobacco and retailing conglomerate that has owned Peoples since 1984 and recently purchased Marriott Corp.'s 600 Roy Rogers restaurants, was getting out of the retail drugstore business took industry observers by surprise, especially since Peoples was recovering from a sales and profit slump.
Company officials said Peoples, which lost $2.5 million in 1988, made a $12.5 million profit in 1989 and increased profit by more than 200 percent to $2.4 million in the first quarter from $700,000 in the same period last year. The improved profits were the result of Peoples selling hundreds of badly performing stores -- 40 percent of its locations -- in the last two years. Peoples used the cash to remodel and streamline its remaining stores.
Analysts said the changes were indicative that Imasco was getting ready to sell Peoples in order to concentrate on its $365 million Roy Rogers acquisition.
"They felt their long-term plans focused on the food business," said David Eisenberg, president and chief executive officer of Peoples.
The sale garnered good reviews from industry observers.
"This is a very positive thing that Peoples is going into such strong hands, and with the streamlining and consolidation of the two chains, it will be a powerhouse," said Crown Books President Robert M. Haft, whose family used to own the Dart Drug chain, now operating as Fantle's.
"If Peoples was going to be sold, it could not have been to a better chain," said David Pinto, managing editor of Chain Drug Review. "With this, Peoples can more than come back and it's a terrific buy for Melville."
It didn't turn out that way for Imasco. After it bought Peoples for $320 million in 1984, the chain made money in the first few years under the new ownership. Then, trying to expand sales, Peoples broadened offerings of nontraditional drugstore goods such as coffeepots and clothing, a move that confused customers and hurt financial results.
The difficulties came at a time when discounters and supermarket chains, such as Giant Foods Inc. of Landover, were taking market share from Peoples and other drugstores.
Management also was shuffled.
Sheldon W. Fantle, the longtime Peoples's chief executive who now runs the troubled Fantle's drugstore chain, was replaced by Eisenberg in 1987.
Company: Peoples Drug Stores Inc.
Company: Melville Corp.
Headquarters: Rye, N.Y.
Corporate: Subsidiary of Imasco Ltd., Montreal
Corporate: Publicly owned company with stock traded on the New York Stock Exchange
Business: 490 stores in the mid-Atlantic states, including the District, Virginia, Maryland, Pennsylvania, North Carolina and West Virginia
Business: 6,930 outlets selling clothes (Marshalls, Wilsons, Chess King, Accesory Lady), drug stores (CVS, Freddy's), shoes (Meldisco, Thom McAn, Fan Club), toys and home items (Kay-Bee, Linens 'n Things, This End Up, Prints Plus) Sales: $1.02 billion in 1989
Sales: $7.5 billion in 1989