Eckerd Corporation

ABOUT THIS COMPANY:

Eckerd Corporation, a wholly-owned subsidiary of J.C. Penney, is the fourth-largest drug store chain in the U.S. (behind Walgreen's, CVS and Rite Aid). As of early 2002, Eckerd was operating more than 2,600 Eckerd stores in 20 states. In addition to prescription and over-the-counter drugs, the retailer offers photo finishing services, cosmetics, greeting cards and a wide range of general merchandise.

More than a century of experience

Eckerd began in 1898 when 27-year-old J. Milton Eckerd opened his first drug store in Erie, Pennsylvania. By 1952 the company had expanded into Delaware, North Carolina and Florida. In a move to raise cash for further expansion, Eckerd converted its Florida business into a publicly traded company in 1961. In the early 1970s the company continued to buy other drug store chains and entered the prescription eyeglass market. When Eckerd's Florida operations reunited with Eckerd's North Carolina business in 1977, the combined company became the second-largest drug store chain in the U.S. In 1985 Eckerd went private in a leveraged buyout involving the company's management. After a string of acquisitions and a 1992 restructuring, Eckerd went public again in 1993, with its shares trading on the NYSE. In 1997 Eckerd became a wholly-owned subsidiary of J.C. Penney, merging with Penney's Thrift Drugs chain.

Hold or sell?

Penney had planned to spin off Eckerd in 1999, but the drug store chain was plagued by too many problems for that to happen. First, it was revealed that losses at Eckerd, before it became a Penney subsidiary, were much higher than previously stated. Furthermore, many of its stores were unprofitable and had to be closed. And then the company was investigated for its pricing practices, eventually agreeing in 2001 to pay $1.7 million in fines for over charging the government for Medicaid prescriptions. With those problems behind it, J.C. Penney changed its corporate structure to a holding company in January 2002, prompting speculation that it was ready once again to spin off or sell Eckerd. Penney executives insisted the company was not for sale and said it would be 2004, at the earliest, before they would decide what to do with it.

Harris takes charge

Wayne Harris, a seasoned retail veteran, became chairman and CEO of Eckerd in September 2000 and was given the responsibility of getting the drug store chain back on track. Harris began by slashing costs, cutting prices on thousands of items, and reconfiguring store layouts. In 2001 alone, Eckerd poured over $210 million into remodeling its stores. The strategy paid off with increased sales of "front-end" merchandise such as cosmetics, snacks and beverages, which make up the bulk of Eckerd's profits.

Another lawsuit

In February 2002 Eckerd was sued for allegedly bilking customers out of $100 million since 1998 by overcharging for prescription drugs. The suit contends Eckerd rounded up some prescription amounts to the nearest whole number for billing purposes, without completely filling the orders. Eckerd says limitations in its computer system forced it to round up the quantity of some medications that had come from manufacturers in pre-packaged, fractional amounts, but the company denied overcharging customers.