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As for beauty products, Magnacca introduced the kinds of expensive lines once found only in department stores. In this regard, too, “we mostly get inspiration from Europe, where they are so progressive,” says Magnacca.
Sales of Duane Reade’s private-label products doubled between 2008 and 2010. Its Look Boutiques generated 25 percent more sales among its most loyal shoppers. And overall sales in the remodeled stores usually increased by percentages in the high teens.
Still, the financial situation remained tenuous. Duane Reade could afford to remodel only 23 of its stores by the end of 2009. Oak Hill Capital had originally invested $244 million to buy Duane Reade, borrowing the other $458 million. In 2007, the firm put in $40 million more and two years later it had to raise an additional $125 million to fund the redesign and buy back some debt at a discount. “Everything we did had to make a return because the clock was ticking,” says Wolfram. “This business was negative free cash flow for every year that we owned it up until the last year.” It had also become one of Oak Hill’s biggest and most scrutinized investments.
In the winter of 2009, Gregory D. Wasson, the chief executive officer of Walgreens, went undercover in Manhattan. “I wore a baseball cap and sweatshirt and went into some old and new stores,” he says by phone from Deerfield, Ill. “The moment I decided we should get serious about buying Duane Reade was after seeing their new Herald Square store. After that, I went with three of my executives to a competitor’s location, and it was a traditional urban drugstore—frankly, like we run—with narrow aisles and merchandise stacked high. I said, ‘Duane Reade is creating something new.’ That’s what we were looking to do.”
Walgreens had opened a new store every 16 hours in 2008 and boasts that 75 percent of Americans live within five miles of one of its stores. “By the fall of that year, we had to slow down, step back, and shift our strategy,” says Wasson. “We’re still opening 200 stores a year, more than all our competitors combined. But we’re moving from ‘location, location, location’ to ‘experience, experience, experience.’”
Among Duane Reade’s recently opened stores is one in Williamsburg, the hipster neighborhood in Brooklyn. After Duane Reade leased the space, “we realized they didn’t want us there because we’re a chain,” says Magnacca. “So we asked them what they needed. They said food and beer.” The executives planned a “beer cave” with local brews. “Then one of our merchandise directors said, ‘What about a growler?’ I said, ‘What’s a growler?’” A growler is a half-gallon jug used to transport draft beer, and Magnacca liked the idea. The growler bar has been so popular that he’s put in two others in Manhattan so far.
When Magnacca, Tiberio, and Jackman (now a consultant) began designing the Wall Street store in late 2010 they were ready to see how far they could push Duane Reade, and they thought a revitalized Lower Manhattan was just the place to try. The 40 Wall St. store is doing well, but it’s not something that Walgreens expects to replicate. Wasson says it’s a learning lab. “We could move bits and parts into select locations,” he says. “We’re selling sushi in a lot of drugstores already, but not with the chef. The smoothies might be an opportunity. Who knows? The ability to get a 20-minute manicure or blow dry may be something we can do in certain locations.” Walgreens is going to bring some of what Duane Reade has figured out in terms of food and cosmetics to its 7,760 stores across the country. It’s already offering 10 DR Delish products.
Duane Reade still has some transforming to do. This year it again ranked last among pharmacies in customer service, as measured by J.D. Power. Its score did improve, though, something that’s never happened in the five years the survey has been taken. Duane Reade executives prefer another ranking, which measures how likely it is that a customer will refer someone to the chain; on that score, Duane Reade says it has improved 150 percent since 2008.
Then there’s the informal score: The I Hate Duane Reade blog went quiet after Walgreens bought the chain. These days, if you Google Duane Reade, the blog comes up sixth.
Berfield is an associate editor for Bloomberg Businessweek.
