The big deal of the day, at least around Curious Capitalist HQ, is Walgreens proposed $1.08 billion buyout of Duane Reade, which is the home town pharmacy chain. It’s another lesson in real estate. Duane Reade was a ratty little downtown cut-price operation until management decided that the key to drug retailing isn’t service—theirs was awful — but location. In the great space race of the last decade Duane Reades began to spring up everywhere there wasn’t a new bank branch going in. Result: there are 257 Duane Reades but independents got squeezed out. My last local pharmacy coughed it up about two weeks ago. Walgreens didn’t play the location game. Instead, the company just waited until the debt monster ate Duane Reade: the deal price assumes $457 million in debt for Duane Reade, which had $1.8 billion in sales last year.
Oddly enough, Duane Reade was getting its act together, renovating stores, and rationalizing the assortment before Walgreen stepped in. And as bad as Duane Reade’s service was, national chains were no better. Their merchandising is clueless. Walgreens says it’s going to leave the Duane Reades as they are for the time being until it figures out how to consolidate the two brands. Walgreens shouldn’t spend too much time worrying about that, since New Yorkers don’t really love either brand.