'Our destiny is in our hands,' says Phar-Mor ceo Haft

Drug Store News, Oct 9, 1995 by James Frederick

YOUNGSTOWN, Ohio - "You can make money in this business. It's our job to prove it."

So says Robert Haft, founder of Crown Books, former Dart Group president and new chairman and chief executive of Phar-Mor Inc.

Haft, who sat for an exclusive interview here last month after Phar-Mor's much-heralded exit from bankruptcy, told Drug Store News the low-price appeal of Phar-Mor's broadly merchandised, deep-discount drug store concept is still a powerful draw to the chain's millions of customers. Enough so, he said, that the newly independent company expects to earn at least $5 million in its first year out of Chapter 11.

"Our destiny is in our hands," said Haft, who was accompanied for the interview by chief financial officer Dan O'Leary and Bill Edwards, newly hired senior vice president of marketing and merchandising. "We see plenty of potential in this business."

Haft bases his optimism on what he says are some key built-in company advantages - and on a range of new efforts designed to turn the chain into a far more cost-efficient, customer-responsive retailer. Those efforts, he and other officers say, will bear fruit as Phar-Mor targets its merchandise mix more effectively to consumer demand, improves its marketing sophistication and lowers its operating and distribution costs through new technology and smarter, POS-based reorder methods. In addition, the new reorder capabilities are aimed at eliminating out-of-stocks.

"We now have more than a year's worth of [product movement] history through the POS system," said O'Leary, adding that Phar-Mor is preparing to test a scan-based reorder and forecasting system this month in two stores. On the horizon, he said, are vastly expanded price-modeling and seasonal buying capabilities.

"It will allow us to implement [marketing and merchandising efforts] much more rapidly," O'Leary told Drug Store News.

"As Dan gives us the tools ... and Bill applies his marketing expertise ... we're developing systems where we can go into the market with much more sophisticated capabilities," said the new chief executive.

Haft is also buoyed by what he describes as the chain's growing ability to partner with key vendors to create more promotional and display excitement inside the stores.

Along those lines, said Edwards, Phar-Mor will become much more proactive in promoting its special purchases with in-store displays. "We're going to be much more consistent. There will be something in the aisles to promote those items."

Among the chain's current strengths, said Haft, is the sheer size of its stores. Even though the chain is downsizing its store format to between 35,000 and 40,000 square feet, he said, the stores still offer plenty of room for expanded drug and specialty categories. He termed that a competitive advantage.

"We have good-sized stores," said the new chief executive. "Our core is going to be a drug store, but we have the space for these other departments. Our size is what differentiates us from the competition."

The chain's growing merchandising sophistication and rapid-response capabilities, combined with tighter buying and cost controls, should help it avoid the dangers of a slow-turning mix that plagued Phar-Mor in the past, said its officers. Indeed, partly because of its growing ability to calculate true item costs, turns and gross margin performance, said Haft, the chain has no plans to abandon its "Power Buying" strategy or its aggressive pursuit of deal buys.

"We plan to become more promotionally oriented, not less," added O'Leary.

Among its built-in advantages, Haft added, Phar-Mor also maintains a strong customer franchise - even in far-flung markets like Oklahoma City, where it has just one store. "We're drawing 750,000 customers a week... spending an average of $27 per shopping trip," Haft said. "The average store does about $10.5 million - and they're all profitable. And we don't believe we're going to lose volume as we remodel."

Haft said the company's goal will be to turn its stores into destination centers for HBAs, cosmetics/fragrances, greeting cards and pharmaceuticals, all of which are being given added emphasis. In addition, Phar-Mor stores are creating powerful new departments for specialty categories like groceries, pet supplies, baby products, vitamins and natural bath/body/skin care items.

"We think with our size stores and the traffic we generate, we can become a destination for these departments," said Edwards. "We're not looking to put more SKUs in a category, but to dominate in the categories we're in."

Phar-Mor is also in far stronger shape financially than it was in its pre-bankruptcy days in mid-1992, said Haft. The company's Chapter 11 reorganization, he said, allowed it to shed roughly $1 billion in debt as its creditors traded their I.O.U.s for equity in the newly reorganized company. "We're left with about $90 million of long-term debt, and about $70 million in short-term obligations, mainly for equipment," he said. "We also have $64 million in cash on hand."