Cloud of Sept. 11 still darkens lucrative NYC market: Manhattan-based Duane Reade continues to dominate its home turf, as it has mastered the science of nailing prime locations and making the most of small, pricey real estate space

Drug Store News,  June 6, 2005  by Antoinette Alexander

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CVS and Rite Aid have pulled back their expansion programs in New York City, and Walgreens also has faced sluggish growth in the city, with just three stores currently open. Among the culprits holding down growth in the Big Apple: expensive real estate, high labor and operating costs and challenging logistics.

While still facing fierce resistance, big-box retailers--perhaps taking their cue from Home Depot's two new scaled-down, urbanized stores in Manhattan--eventually could spice up the mix if they can overcome opposition from local authorities and neighborhood groups.

Recently, a planned 203,000square-foot B.J.'s Warehouse Club in the Bronx, just north of Manhattan, was scuttled, noted Marcus & Millichap, and Wal-Mart backed away from plans to build a store in Queens, which is predominantly a residential borough and host to New York's JFK and LaGuardia airports.

Meanwhile, Acadia Realty Trust is planning for the Bronx a $60 million development on a site where a Sears now stands. The Sears lease expires in 2007, and Acadia is hoping to redevelop the site to attract national retailers, such as Target and Kohl's, according to Marcus & Millichap.

One to beat

Duane Reade is the market leader in Manhattan with 249 stores in metro New York, and--despite the drug chain's financial woes--that is not likely to change in the near future as big players like Walgreens and CVS have shied away from the Big Apple's limited and expensive real estate, high operating costs and challenging logistics.

In 2005, Duane Reade expects to open eight to 10 new stores and shutter 10 to 12 units.

In an effort to bolster weak front-end sales, Duane Reade has implemented such front-end initiatives as ATM-like movie vending machines in about 24 stores, a Chock full o'Nuts coffee kiosk that could be expanded to as many as 100 stores and European-style skin care centers in four high-traffic areas, including one within a stone's throw of the high-priced cosmetics counters of Bloomingdale's.

One to watch

Brooks-Eckerd may operate only a handful of stores in Manhattan, but the Brooks management team is making impressive strides in turning around the ailing former Eckerd stores.

With the help of lower prices on thousands of items, an in-store remerchandising initiative and a new circular program, Brooks' management has bolstered front-end market share in its New York area stores from 9.6 percent to 10.8 percent between July 31, 2004--the day the acquisition officially closed--and December 2004, according to Chain Store Guides' 2004 estimates. In general, the focus has been a return to operating the Eckerd stores like drug stores again.

Much like Duane Reade, Brooks-Eckerd has introduced Manhattan to its European-style skin care centers, dubbed Derma Skincare Centers. One such location is a former Eckerd unit in trendy SoHo.

One for the books

It may not have a pharmacy department, but when it comes to health and beauty aids, Manhattan-based Ricky's Urban Groove is a tough contender with its eclectic mix of private label, mass, specialty and hard-to-find brands.