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Walgreens cancels deal to buy Rite Aid

BY Marianne Wilson

Walgreens Boots Alliance has announced a new Rite Aid deal, ending its nearly two-year quest to acquire the Camp Hill, Pa.-based drug store chain. The divestiture agreement with Fred's Pharmacy, whereby Fred's would buy 865 Rite Aid stores, is also terminated.

The move comes after Walgreens has struggled to win approval of the deal from the Federal Trade Commission. Under the new agreement, Walgreens will acquire 2,186 of Rite Aid's 4,523 stores for $5.175 billion in cash. Also, Rite Aid will receive a $325 million termination fee.

"For Walgreens, this is potentially a good deal, gaining them expanded prime store presence, but without a lot of the overheads and challenges that come with taking over an entire company,” commented Maulik Bhagat, a managing director in the healthcare practice of AArete, a global consultancy. "It will allow the company to drive significant synergies through their operations, supply chain, etc. And it should allow Rite Aid to focus internally and look at ways to get back to profitability."

The 2,186 stores included in the new agreement are primarily located in the Northeast, Mid-Atlantic and Southeastern regions of the United States. Three distribution centers are included in the agreement, with locations in Dayville, Connecticut, Philadelphia and Spartanburg, South Carolina. Under the terms of the agreement, Rite Aid will provide certain transition services to Walgreens for up to three years after the closing of the transaction.

"While we believe that pursuing the merger with WBA was the right thing to do for our investors and customers, this new agreement provides a clear path forward and positions Rite Aid as a strong, independent, multi-regional drugstore chain and pharmacy benefits manager with a compelling footprint in key markets," said John Standley, chairman and CEO of Rite Aid. "The transaction offers clear solutions to assist us in addressing our pharmacy margin challenges and allows us to significantly reduce debt, resulting in a strong balance sheet and improved financial flexibility moving forward."

The initial closing of the new transaction is expected to occur within the next six months. Upon closing, Walgreens will begin acquiring the Rite Aid stores and related assets on a phased basis over roughly six months, and intends to convert acquired stores to the Walgreens brand over time.

“This new transaction extends our growth strategy and offers additional operational and financial benefits,” Stefano Pessina, executive vice chairman and CEO of Walgreens Boots Alliance, said. “It will allow us to expand and optimize our retail pharmacy network in key markets in the U.S., including the Northeast, and provide customers and patients with greater access to convenient, affordable care."

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R.Mader says:
Jun-29-2017 03:24 pm

Why the BIG concern about this acquisition when not a word is being said about Amazon and Whole Foods?? Okay, grocery is new segment, but still retail. Amazon uses the revenues from AWS to under cut retailers pricing. Yes they have good technology and returns policy and prime deliver but seems like unfair competition to me. Hard to compete against someone who doesn't need to make a profit.

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CEO Spotlight: Chris Homeister, The Tile Shop

BY Marianne Wilson

With home remodeling and housing starts on the rise, The Tile Shop is in a sweet spot. The specialty retailer of manufactured and nature stone tiles, which reported a 8.8% increase in net sales and a 4.9% increase in same-store sales for its first quarter, displays its collections in a showroom-like environment that includes full-room tiled displays and a design studio where customers can utilize 3D renderings to visualize their design ideas.

Chris Homeister joined The Tile Shop as COO in October 2013, and was named president and CEO in January 2015. Previously, he served as the general manager and senior VP of Best Buy's entertainment business group.

The Tile Shop has flourished under Homeister, who has presided over a turnaround that included the application of more analytical-based decision making to its business model. He also has devoted more resources to training associates, increased the company's focus to better serve the professional customer, and brought a more strategic approach to new store growth.

CSA spoke with Homeister about The Tile Shop and its plans for the future.

How is The Tile Shop positioned in the marketplace?

The Tile Shop has a unique retail offering that caters to both the trade professional and to the general consumer who is looking to update their tile options. Our trade professionals include general contractors, interior designers, flooring installers and customer home builders.

Tell us about the changes you've implemented since becoming CEO.

I’ve focused my efforts on three areas: developing our people, implementing new programs for the professional consumer and strategic store growth – all of which contributed to a dramatic improvement in financial performance.

Many initiatives were aimed at encouraging the same type of entrepreneurship that fueled the company’s growth in its early years as well as improving the customer shopping experience.

How are things going?

Our initiatives are working well: Between January 2015 and June 2017, we’ve opened 23 new stores, comparable store sales increased in an excess of 7% each year, and our share price has more than doubled.

Further, employee turnover has significantly declined and new store financial performance has improved dramatically.

What are your key priorities going forward?

This year, The Tile Shop is focused on expanding our brand to additional key markets, such as the Southwest, to inspire home owners and professional contractors alike to realize their home design dreams.

Additionally, we will also continue to build upon our success with improving e-commerce shopping experience, as well as finding unique ways to showcase our tile offerings via innovation and technology to further enhance our customer experience.

In your first quarter, turnover of sales associates was down about 25% from a year ago and nearly 50% from two years ago. How do you explain this — and why is it important?

Over the last couple of years, we’ve placed a significant emphasis on ensuring our sales associates are growing and developing by enhancing product knowledge, sales skills, expanding our sales career path, and leadership development among our current workforce. Developing great people is at the core of our business, and is the key element that has been driving our success.

I’ve also made it a personal priority to establish one-on-one relationships with store managers at each of The Tile Shop’s 129 current stores. And I personally speak to each new store manager before she or he is selected to lead our store. The customer is at the center of everything that we do, and I want to ensure that we have leaders in our store that share this same vision.

Through these initiatives, The Tile Shop has a created a class of tenured, motivated leaders at the store level, who have the skills and confidence to provide an exceptional customer experience and just as importantly recruit sales associates and designers to the store that make this vision come alive each and every day. Further, a pipeline of talent is being readied to step into new leadership roles as the company expands.

In a challenging retail environment, The Tile Shop is thriving. What are key factors in the company’s success?

In the first quarter of 2017, we reported record sales and profits. And we’ve continued to see these record numbers due to our effectiveness of consistently providing a high customer service level, which is certainly a key to our high average order and overall satisfaction.

Additionally, our Pro business has never been stronger, where we are viewed as a trusted partner with our professional customers at each store location.

How does the sales mix break down between regular homeowners and professionals?

Business to consumers accounts for about two-thirds of our business. Trade, or B2B, accounts for approximately one-third.

Is online a priority in your market niche?

More than 90% of our customers visit our website before, during and after their shopping experience with The Tile Shop. This is exactly why we’ve made significant improvements to our website over the last several years including the launch of an innovative new design tool called, Design Studio, allowing both professionals and general customers to customize their room design using The Tile Shop products.

We’ve also improved product pages and design content so it’s easy for customers to get inspiration for their next tile project.

What is the average store (showroom) size?

Size varies based upon location, but 14,000 sq. ft. is our new average showroom size.

How many new locations will the company open in 2017?

We will be opening approximately 12 to 15 stores in 2017, as well as entering into a new priority market later this year.

What type of locations do you prefer?

Locations are determined by many factors, including demographics, proximity to competition and existing stores, distribution centers, etc. We are opening both strip center, free standing, and also in urban locations – most recently in Atlanta (Buckhead), and Washington, D.C.

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Staples acquired in blockbuster deal

BY Marianne Wilson

The nation's largest office supply retailer is returning to private ownership.

Private equity firm Sycamore Partners has acquired Staples for $10.25 per share for cash. The deal is valued at about $6.9 billion.

"The Sycamore Partners’ team shares Staples’ entrepreneurial spirit and long-term vision,” said Shira Goodman, CEO and president, Staples. “This transaction will enable us to drive greater value for our customers and immense opportunity for our business.”

In May 2016, Staples abandoned its quest to acquire rival Office Depot for some $6.3 billion amid antitrust concerns by the Federal Trade Commission. Staples operates 1,255 stores in the United States, and 304 in Canada.

The transaction, which is subject to customary closing conditions, is expected to close no later than December, 2017. The closing is not subject to a financing condition.

Staples has been working to improve its business by shifting from its traditional emphasis on serving consumers to one that also targets small- and mid-sized companies. It has closed over 300 stores since 2011, and recently annnnounced plans to close some 70 locations by yearend. Going private will enable Staples to execute its strategy without having to endure the glare of Wall Street.

"With an iconic brand, a winning strategy, and dedicated and passionate associates who are deeply focused on the customer, Staples is truly an outstanding enterprise,” said Stefan Kaluzny, managing director of Sycamore Partners. “We have tremendous confidence in CEO Shira Goodman and great respect for the Staples management team and are excited about this opportunity to partner with them to accelerate long-term profitability.”

Sycamore's investment portfolio currently includes Belk, Coldwater Creek, Hot Topic, Nine West Holdings, and Talbots.

This is a developing story. Check back later for more details.

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