Saturday, February 10, 2001

Pharmacies jockeying for drive-through room

Drugstore moves hurt strip malls

By Ken Alltucker
The Cincinnati Enquirer

        When Darius Bobo began searching for a place to open his PC Outlets computer shop a few years ago, he settled on a Vine Street storefront in Hartwell because he thought it would draw customers.

        It's near a busy intersection and, more important, next to a Walgreens store, part of a national drug chain that attracts thousands of shoppers.

        “It's been a good location for my business,” Mr. Bobo says. That's why Walgreen's decision to close and reopen a free-standing store close by “is going to hurt tremendously,” he says.

[photo] Darius Bobo, owner of PC Outlets computer store in Hartwell, is disappointed the Walgreens next to his Vine Street store is moving nearby. The relocation “is going to hurt tremendously,” he says.
(Glenn Hartong photo)
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        National pharmacy chains are rapidly ditching strip malls for stand-alone corner stores where they dispense drugs via drive-through windows. That's left commercial property owners scrambling to revive darkened retail centers, small businesses desperate to latch onto another anchor and neighborhood activists eager to check blight.

        “There is a war going on between these big chains and often to the detriment of the communities,” says Stacy Mitchell of Minneapolis-based Institute for Local Self-Reliance.

        A slowdown of so-called “big-box” expansion has been well documented in recent weeks. Retailers such as OfficeMax, Office Depot, Home Depot, J.C. Penney and Sears Roebuck all have announced layoffs, store closings and scaled-back expansions.

        But drug chains Walgreen Co. and CVS Corp., buoyed by escalating demand for prescription drugs, are expanding faster than ever. Deerfield, Ill.-based Walgreen Co. will open 500 Walgreens stores nationwide during its fiscal year ending Aug. 31 (Walgreen Co. is the company's corporate name, and Walgreens is the name used for its retail stores). Woonsocket, R.I.-based CVS will open 400.

        Another chain, Camp Hill, Pa.-based Rite Aid, has cooled expansion efforts after being rocked by a financial scandal that included allegations it misled shareholders.

Neighborhood concern

        More than two dozen Greater Cincinnati stores have opened or have been planned since 1999 as the two drug chains jockey for the best sites. Most new stores have been relocations from older sites a block or two away.

        One new CVS store planned at Taft and Vine Street has raised the ire of Clifton Heights business leaders trying to revive the area.

        They've mapped out a revitalization plan with the University of Cincinnati that seeks to avoid developments like the one CVS proposes — a large parking lot attracting lots of car traffic. The Clifton Heights plan calls for relocating several fast-food restaurants into a food court, freeing up valuable land for development.

        The planned CVS is across the street from a closed nightclub that the Clifton Heights business district has acquired and plans to redevelop.

        “Our concern is whether it will fit the neighborhood,” said Tony Hamburg, president of the Clifton Heights Business Association. “But it's out of our jurisdiction.”

        In many cases, the drugstore must fulfill long-term leases on the stores they leave — keeping old stores empty while the newer nearby stores thrive. Because the drug chain pays the lease, it has the option to keep the space empty or sublet it to another retailer.

        This allows the national chains to block competitors from operating on their old turf in what has become a high-profile chess match of drugstore real estate. But it's also a dose of bad medicine for the independent retailers who depend on drugstore neighbors to draw shoppers.

        “Just about any owner of a (drugstore-anchored) shopping center has got to know they are at risk,” says Rob Taylor, senior vice president of Colliers International in Cincinnati. Chain drug retailers' “complete focus” is getting a stand-alone location.

        Mr. Bobo believes the Walgreens Hartwell relocation was prompted by CVS, which left a nearby store to snag a Vine Street corner lot across from the old Walgreens.

        The corner lots with drive-throughs are an essential part of Walgreen's and CVS's strategy. They help make the drug retailers more nimble than larger competitors such as Kroger and Wal-Mart.

        CVS estimates sales jump 30 percent when it discards an old strip mall location for a nearby stand-alone store, says Todd Andrews, CVS spokesman.

        Why so much?

        Partly, because drive-through locations are more convenient. Customers don't have to hassle with waiting in line or walking through the store.

        “Our research shows the people who use the drive-throughs are mothers with children who don't want to get out of the car,” Mr. Andrews says.

        Also, stand-alone spots are usually larger and carry more products. At larger grocery-anchored strip centers, the drug retailers get tangled by merchandising restrictions that limit what products they can sell. Now drugstores are selling convenience items, such as quick photo processing, snacks and cosmetics.

Calling the shots

        Another advantage: The chain drugstores, by having their own sites, can escape escalating rent agreements that many strip-mall owners impose. These leases specify that the more a store makes, the more it has to pay in rent.

        “They don't want to hassle” with restrictions, says David Mengel, senior associate with CB Richard Ellis, a national real estate broker with offices in Cincinnati. “They are selling products that are competitive to other strip tenants.”

        CVS has 65 stores in Greater Cincinnati; Walgreen has 49. Of 13 new CVS stores opened in 1999 and 2000, 11 were relocations. The chain plans to open six more stores in 2001.

        Walgreen, expanding more aggressively in Sunbelt states where aging populations have boosted demand for prescription drugs, opened two Greater Cincinnati stores in each of the past two years and is building stores in Hartwell, Clifton and Symmes Township. It also has tentative plans for stores in downtown Cincinnati, Norwood, Florence, Erlanger, Burlington, Fairfield and West Chester.

        Walgreen left its Hillcrest Square location last year in Bond Hill to build a free-standing store at Seymour Avenue and Reading Road.

        Hillcrest officials fear the center's other anchor, Kroger, will also leave to pursue a larger store, leaving behind an anchorless center with few browsers. A Kroger spokeswoman says the grocer has no plan to expand or leave Hillcrest.

Struggling strip mall

        Across town on Winton Road, CVS and Big Lots recently left the Brentwood Plaza shopping center in Finneytown.

        The tan stucco retail center is like any other in Greater Cincinnati — except it attracts fewer shoppers without the anchors, tenants say.

        “It's frustrating for us,” says Beth Dean, owner of an independent book store, The Open Book. “I don't have any hard feelings toward CVS. They're a business, too.”

        Ms. Dean has tried to compensate for a noticeable drop in browsers by scheduling events, notifying customers of specials and running a Web site. She even hauls in her Great Dane, Hamlet, to greet customers.

        The center's owner, New Plan Excel Realty Trust, promises a turnaround. The old Big Lots store will be demolished to pro vide room for an unnamed big-box retailer. And leasing agents are pursuing another retailer to fill CVS's old location.

        “We've had a lot of drugstores move out of our centers,” says Elizabeth Nichols, New Plan's regional leasing manager. “The fact that they (CVS) went across the street helps. If they had gone farther away, or in a different market, it probably would hurt.”

Anticipated move

        In Loveland, Walpert Properties is busy finding a tenant for its Loveland-Madeira Road shopping center, even though Walgreen hasn't notified the real estate firm that it intends to leave. Despite a long-term lease, Walgreen's move is obviously planned because the drug chain is having a store built down the street.

        Walpert vice president Mike Hurwitz doesn't know whether Walgreen will try to lease its shop to another retailer or deliberately keep it empty. It's used both strategies — depending on competitive circumstances — at Walpert properties in other markets. Mr. Hurwitz doesn't anticipate having trouble replacing Walgreen because the neighborhood shopping center is well-maintained. It's the older centers that have trouble replacing drug retailers, he says.

        “It really has never been a problem in any of our centers,” Mr. Hurwitz says.

        Mr. Hurwitz says abandoned big-box stores like Wal-Mart pose the real problem because they leave behind locations that are too small for major retailers and too big for average retailers.

Reining in chains

        The unchecked expansion of national chains is harmful, Ms. Mitchell of the Institute for Local Self-Reliance says, because they knock out local businesses and chew up property to build new stores.

        Some communities are seeking to restrict expansion of national chains. Boulder, Colo., for instance, is considering an ordinance that would cap the number of chain businesses. National chains eyeing a store in Vermont must submit an economic impact study before gaining approval to build a new store. The idea is to prevent retailers from cannibalizing one another.

        “Cities don't have to tolerate it,” Ms. Mitchell says. “Communities can put in place rules that discourage that type of development.”

        Not all local leaders agree.

        After initial skepticism, Bond Hill community leaders have embraced the new Walgreens as a chance to redevelop the area.

        “It really helped jump-start the revitalization,” says Cincinnati City Councilwoman Alicia Reece, who is pushing an effort to redevelop the Seymour Avenue business district. “Nobody else came in here. Now others will look and see Walgreen invested $3 million in the area.”

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