Arbor Drugs has simply become one of the best

Drug Store News, Oct 9, 1995 by James Frederick

Someday, perhaps, someone will compile the deceptively simple rules by which Arbor drugs and its founder, chairman and chief executive, Eugene Applebaum, have succeeded so convincingly for the past 32 years. It should be required reading for every retailer.

Arbor has become, quite simply, the best-run and most successful regional drug chain in North America, and one of the most respected mid-sized retailers of any trade class. New evidence of the industry's recognition of the chain's excellence came this summer, when Arbor was voted the Drug Store News REX Award winner as regional chain of the year for the second time in six years.

It isn't hard to see why. Despite operating in one of the toughest drug store markets in the U.S., the chain has turned in record sales and earnings results year after year, with a compounded average annual growth rate of 15.6 percent in sales and 17 percent in net income over the past five years.

Skyrocketing sales

Its stores average more than $4.1 million in sales in 11,000 square feet, and its sales per square foot are sure to top $500 this year, far above the industry norm. Net profits come to more than 3 percent of sales - in a market where third-party payment plans and tight reimbursement levels have traditionally dominated the prescription arena because of the auto industry.

What's more, Arbor has tripled its market share in greater Detroit over the past decade, eclipsing rival Perry Drug Stores two years ago as the leading drug chain in the nation's fifth-largest drug store market.

Arbor's sales performance has also made it the nation's 17th largest drug chain in annual revenues.

The rules as distilled and practiced by Arbor Drugs are simple enough:

* Stay focused on the business you know.

* Listen to your customers.

* Keep your costs down and your turns up by attacking those costs repeatedly to wring out excessive inventory, and by automating every aspect of the supply chain for more efficient reordering.

* Stay in stock.

* Price your merchandise competitively, but don't try to play the deep-discounting game.

* Keep your stores obsessively clean and up to date.

* Look for new ways to leverage your technology and your scan information.

* Stay consistent in your layout, decor and pricing from store to store.

* Take only the best real estate available, but take aggressive advantage of fill-in opportunities in your strongest markets. Leverage your identity.

* And above all, let your customers determine what you sell and how you sell it.

There's no rocket science in any of the above. Indeed, Applebaum has always insisted the rules aren't hard to understand. But their very simplicity belies the history of chain drug retailing, which is littered with the remains of companies that failed to execute the basics and maintain their hold on their customers. What sets Arbor apart is its unswerving discipline in applying its winning formula for achieving customer loyalty, day in and day out, in store after store. That, and the sheer clarity of vision expressed by its leaders.

"Everybody's looking for the answer - and I don't mean to be trite, but the answer is you take care of your business," said Arbor's founder in an interview last month.

Details, details, details

Instead, said the 58-year-old chief executive, running a successful drug store business depends on paying attention to details, on doing consistently a thousand little things right, every day.

Indeed, Applebaum insists that drug stores haven't really changed that much in concept "since Ben Franklin's time." Applebaum is fond of saying that he likes to keep things simple, telling one reporter recently: "I don't like to make things more difficult than they are."

In Arbor's case, that has meant resisting the allure of sideline retail ventures and general merchandise categories like auto supplies and video over the past decade and a half, when so many other drug chains found the potential in these ventures irresistible.

In retrospect, Applebaum's refusal to venture too far afield appears highly disciplined and farsighted: by avoiding distractions and sticking to what it does best, the chain has crystallized an enormously powerful image in southeastern Michigan as a convenient, well-stocked, easy-to-shop neighborhood drug store in tune with its customers and their everyday needs.

Know the customer

Arbor spends a copious amount of time and money to study its customers and to track general consumer trends. Said Applebaum, "There are certain things I've always paid attention to. One is the customer - what she wants, what price she wants to pay, etc. Another is market research."

Thus, Arbor was an early convert to the benefits of automation and information-driven merchandising. It has been aggressive in applying scan data to its efforts to control replenishment and inventory movement, fine-tune the mix, upgrade planograms and stay close to its customers.

You can't make it tough for the customer," said Applebaum. "We overhaul our cosmetics department a minimum of three times a year, and our HBA sets every four to six months."