Eckerd Corporation

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Eckerd Corporation

8333 Bryan Dairy Road
Largo, Florida 34647
U.S.A.
(813) 397-7461
Fax: (813) 398-8369

Public Company
Incorporated: 1986 as Jack Eckerd Corporation
Employees: 38,000
Sales: $3.8 billion
Stock Exchanges: New York
SICs: 5912 Drug Stores and Proprietary Stores; 5995 Optical Goods Stores

Eckerd Corporation operates a chain of about 1,700 drug stores primarily in the Sunbelt states, and a chain of Eckerd Optical centers and Visionworks stores in five southeastern states and Washington, D.C. The company also operates a large photo processing enterprise with all stores offering photo-finishing services and more than 400 stores operating mini-labs with one-hour Express Photo service. In 1989, Eckerd Corp. acquired Insta-Care Pharmacy Services, which provided prescription drugs and medical consulting services to long-term care health care facilities in six states.

Eckerd drugstores traces its history to the days when Jack Eckerd’s father, J. Milton Eckerd, launched one of the country’s first drugstore chains in Erie, Pennsylvania. Jack began working for his father’s company during the Depression. He learned the business from the bottom up, despite his father’s warning, “You’re going to work longer and harder than anyone else, and you’re not going to make too much money.”

In the 1950s, Jack Eckerd became interested in a new concept being used in drugstores—self-service. In 1952, Jack left his father’s chain to purchase three struggling drugstores in Tampa and Clearwater, Florida. Using the self-service concept, he turned the three stores into financial successes.

According to friends and family, the Jack Eckerd chain became successful because of Eckerd’s honesty, hard work, dedication, and people-oriented philosophy of management. He told one interviewer, “I made up my mind I would never do anything, if I could help it, that wasn’t in the best interest of the customers, the employees, and the stockholders.” His wife Ruth wrote that he could not drive by one of his stores without going in to talk to the employees. He himself said that understanding employees and making decisions based on fairness were essential to his success. He called his employees his company’s greatest asset.

Eckerd tried to keep in touch with employees and listen to their suggestions because they were the ones who came in contact with the customers. To foster a sense of family, Eckerd sent personally-signed birthday cards to all employees throughout the chain, stopping this practice only when the employee rolls grew to 8,000.

Eckerd drew attention when he successfully challenged Florida’s “fair trade law,” which prohibited retailers from reducing prices below those charged by other retailers in the state. Eckerd successfully argued before the Florida Supreme Court that the law was unconstitutional and that he had the right to provide discounts to increase his share of the market. Discount pricing and other customer-pleasing strategies such as senior citizen discounts and two-for-one prints of processed film helped make the Eckerd chain a success.

In 1959, Publix markets, a southern grocery chain, offered Eckerd the opportunity to build drugstores next to five of its supermarkets in strip shopping malls. Eckerd borrowed $1 million and committed to a 15-year lease on each of the stores. Eckerd took his company public in 1961 as Eckerd Drugs of Florida and then went on to buy a string of other southeastern drugstores and other businesses. In 1966, Eckerd bought Old Dominion Candies (which he sold in 1972); in 1968, he purchased Jackson’s/Byrons, a junior department store chain based in Miami that was renamed J. Byrons; and in 1969, he acquired the Gray Security Service and the food-service supplier Kurman Company. In 1970, Eckerd bought Brown’s Thrift City Wholesale Drugs and Mading-Dugan Drugs. He also purchased Eckerd Drugs Eastern and Ward Cut-Rate Drug in 1973. In 1977, he bought Eckerd Drugs of Charlotte, North Carolina, a store that his father had started and then sold, along with other stores, to his son-in-law in the 1930s. With this purchase, all Eckerd drugstores were now owned by Jack Eckerd.

During the 1970s, Jack Eckerd made a number of unsuccessful bids for public office. He lost his first race when he ran in a primary election for governor of Florida in 1970. In 1974, he won the Republican nomination to run for the U.S. Senate but lost the election. Eckerd ran for governor again in 1979 but once again lost his bid for elected office. Eckerd only held public office when President Gerald Ford named him head of the General Services Administration (GSA) in 1975. During his tenure at the GSA, Eckerd turned over chairmanship of the company to Stewart Turley, who remained chairman of the board more than 15 years. Eckerd returned to the company as a member of its board in 1979.

In 1980, Eckerd Drugs strengthened its presence in Texas by acquiring Sav-X drugstores of Abilene and 40 Sommers Drug Stores. Eckerd also entered the video market by acquiring American Home Video, which owned the Video Concepts stores. Eckerd sold both the video concern and J. Byrons stores in 1985.

Jack Eckerd became a hero in the Christian press in the mid-1980s when he ordered Playboy, Penthouse, and Hustler magazines and other “questionable books” off the shelves of Eckerd Drugs stores, calling them “America’s family drugstores.” According to the Christian Herald, Eckerd also led a drive, through lobbying and public pressure, to convince other drugstore chains to “stop selling pornography.”

The late 1980s brought a shakeup in management when the corporation was in danger of being seized in a hostile takeover. To block the hostile takeover, Eckerd sold his shares in the company to a management investment group in a leveraged buyout. Merrill Lynch Capital Partners negotiated the leveraged buyout of the Eckerd Drugs company by its managers for $1.2 billion. The buyout left Merrill Lynch and affiliates with 58 percent share of the company, and Eckerd Drugs was once again a private company, named the Jack Eckerd Corporation. Jack Eckerd’s sale of his shares brought him $36 million.

Eckerd is well-known for his philanthropic work, especially the $10 million he donated to Florida Presbyterian College, which was renamed Eckerd College in 1971. He had also been active in prison work, chairing a private-sector board to oversee prison industries in Florida. After the sale of his company shares, he continued to donate money and energy to various causes, especially his Eckerd Family Youth Alternatives, which operated in seven states and sponsored wilderness programs for troubled youths. By the early 1990s, it had more than 850 employees and a budget of more than $20 million, and Eckerd served as board chairman.

The management buyout brought a new look to the drug chain, as the company spent $20 million a year to remodel more than 250 stores each year. The late 1980s also brought some massive closings and purchases. Eckerd Corp. shut down 45 of its least profitable stores and sold eleven of its Tulsa, Oklahoma stores. On the other side of the ledger, however, it bought 32 Shoppers Drug Mart Stores located in Florida and also opened 50 new stores. The company also expanded its optical and photofinishing services by adding 79 Express Photo mini-labs and more than 20 Visionworks stores.

When Revco drugs declared bankruptcy in 1990, Eckerd immediately acquired 220 of its stores, and engaged in protracted negotiations to acquire the remaining stores in the Ohio-based chain. Eckerd chairman Stewart Turley saw Reveo and Eckerd as very compatible, given the similarity of size and the fact that geographically they complemented each other: half of Reveo’s stores were located in states in which Eckerd operated, but the other half were located in the Midwest, which would extend Eckerd’s market. The merger of Reveo and Eckerd would also have given Eckerd more clout in the prescription market. With competition tight for the third-party payment plans of government, unions and company medical plans, volume was the key to prescription profits. If Eckerd became the largest drugstore chain, it could offer lower prices and become more attractive to third-party clients.

Eckerd’s offer for Reveo was worth almost $779 million, pushing challenger Rite-Aid out of the running. Most creditors were now backing Eckerd’s plan, which also called for turning Reveo headquarters into a regional office and closing about 250 Reveo stores. However, a last-minute re-organization plan by Reveo promised to save thousands of jobs and keep most Reveo stores open, quashing Eckerd’s bid. Reveo agreed to pay Eckerd $7.5 million to cover the expenses generated by the bidding process. When Revco carne out of bankruptcy in mid-1992, however, speculation continued that it would again be put on the block by its managers and creditors and that Eckerd and RiteAid were still interested in owning the Reveo chain.

According to Florida Trend magazine, however, Eckerd’s numbers look rather dismal: long-term debt was more than $1 billion in 1992. Since the 1986 leveraged buyout, shareholder equity dropped from $478.5 million to a deficit of $265.5 million. The company lost $300 million between 1987 and 1992, and in four of those years operating profits did not even cover interest expenses. In the spring of 1993, Eckerd negotiated a refinancing deal with two banks, allowing it to simplify its debt structure and save considerably on interest and dividend costs. The company announced that the refinancing also would support expansion plans.

Eckerd Corp. owned 1,692 stores in 13 states as of 1993. More than 540 Eckerd drugstores were located in Florida, 475 in Texas, almost 200 each in North Carolina and Georgia, more than 100 in Louisiana, and fewer than 100 in South Carolina. There were also Eckerd stores scattered throughout Tennessee, Mississippi, Oklahoma, New Jersey, Alabama, Delaware, and Maryland. Express Photo shops were located in 405 of these stores. Prescription drugs and over-the-counter drugs accounted for more than half of the company’s revenues, with prescription drugs showing tremendous growth.

In 1992, the chain launched plans to increase its cosmetics and fragrance sales by adding new upscale product lines. It also consolidated its corporate structure, reducing operating regions from eight to six, and cutting about 600 headquarter and field office jobs to reduce the number of bureaucratic layers between stores and top management.

The expansion of beauty aids sales and consolidation of operations came at a time when Eckerd, as well as other drugstore chains, were facing intense competition from mass merchandisers such as Wal-Mart Stores, which were carrying more health and beauty aids that were traditionally bought at drugstores. The drugstores had already lost business to supermarkets and were being forced to become more like corner convenience stores by carrying more foods and beverages. According to Eckerd chairman Stewart Turley, chain stores such as Eckerd must have core departments, especially prescriptions, photo-processing, and greeting cards. Eckerd, as well as other chain drugstores, also began offering free home delivery for elderly customers and young parents. In August of 1993, Jack Eckerd Corporation returned to the public arena as the Eckerd Corporation. The company is listed on the New York Stock Exchange.