Rite Aid optimistic, but admits economy is an obstacle

CAMP HILL, Pa. A slowed economy has certainly proven to be a bump in the road, conceded Mary Sammons, Rite Aid chairman, president and chief executive officer, in an open letter to stockholders, customers, associates and suppliers, in explaining, in part, the impact a down economy has had on a chain still in the process of absorbing the store base of its Brooks/Eckerd acquisition of last year.

But Sammons expressed confidence that Rite Aid would ultimately prove successful. “The length and strength of the economic downturn is unclear. But our determination to succeed is not,” she wrote. “We remain committed to making Rite Aid not just a bigger company, but ultimately a much better one.”

Still, the economy has had an impact, she said. “In the second half of the fiscal year, recession fears continued to grow, prescription sales in general slowed and customers became a lot more careful with the fewer dollars they had to spend,” she said. “What happened to Rite Aid happened to most retailers. But, unlike other retailers, we had just increased our size by more than 50 percent and embarked on a 16-month integration of more than 1,800 stores that called for integrating six new distribution centers, converting all store systems, adding 8,000 items of new merchandise and a minor remodel program to make the stores all look and feel like Rite Aid. And with the credit crunch following the burst of the housing bubble, more highly leveraged companies like ours became unpopular with investors despite the fact that we already had the financing we needed for our integration plan.”

Sammons acknowledged that Rite Aid may have been overly optimistic about the performance of the acquired stores, where merchandise in the front of the store was out of stock and sales already had declined during the nine months it took to close the acquisition. “We wrongly thought that even with the upheaval of changing out nearly all merchandise in the front of the store and completing a significant number of systems conversions and minor remodels, we could keep disruption to customers and frustration for associates to a minimum.”

But that period of potential customer upheaval is nearing its end, Sammons said, after which the chain will continue its dedication to improving customer service and store performance. “Our integration is proceeding smoothly into the new fiscal year with completion of all systems conversions set for the end of May, 2008 and all store minor remodels finished by October, 2008,” she said. “Sales and margin trends in the acquired stores continue to improve, and customer complaints during the transition have continued to drop substantially. … Although it’s going to take more time than we initially anticipated to get our acquired stores performing at the level we expect, we now have the scale and density in key markets to more effectively compete and improve our performance.”

Along with the letter to shareholders, Rite Aid released its annual report for fiscal 2008 and scheduled its annual stockholders meeting for June 25, to be held in Harrisburg, Pa.