In the marbled halls of a converted lobby in the Trump Building on Wall Street last week, a party was underway. Rihanna was blasting from turntables manned by D.J. Clue. A line of office workers waited for autographed photographs from baseball once-was Darryl Strawberry. Caterers in bow ties circulated trays of chicken skewers and stuffed peppers.
It almost could have been a nightclub, except that it was 11 a.m. and, in a corner, a woman presided over a table of free antifungal toenail spray samples. Despite the professional athlete and the music, this was a Duane Reade, the opening of the drug store chain’s new flagship store.
This store takes Duane Reade to previously unnecessary consumer heights: a search for contact lens solution took us past rows of gourmet chocolates and jars of chicken jalfrezi sauce, past the store’s “Look Boutique” with its shelves of antiwrinkle cream and touchscreen digital displays offering makeup consultation. Along with the refrigerated units filled with Chimay and sushi, and the station offering manicures, a hair salon offered blowouts nearby an entire room filled with perfumes. The pharmacy counter was in the corner in the back, an afterthought.
We ate a stuffed pepper from a tray, found and paid for our contact lens solution, and held out our hand out for free antifungal toenail spray and barbecue potato chips by Delish, Duane Reade’s in-house brand. Walking out the door, we were stopped one more time.
“Did you get your free gift?” asked a smiling woman. We shook our head no and dutifully put out our hand once again. “One hundred percent cotton panty liners,” she enthused. “You go, girl!”
Another day, another new Duane Reade.
Of late, the prospect of a single Walmart’s breaching New York City limits has sent local politicians into paroxysms of rage (at least those who have not received hefty donations from the company for pet projects). When the subject of Duane Reade is brought up, however, most local pols shrug. The similarities abound: ubiquity, megacorporate ownership, aggressive expansion and the drive to quash competition. Is there a difference?
Duane Reade is an inevitable retail experience for New Yorkers; a place to fill a birth control prescription when drunk at 3 a.m. on the Upper West Side or buy milk on a Sunday morning in Bedford-Stuyvesant. Universally experienced, it is less universally loved. To wit, the “I Hate Duane Reade” and “I’m Boycotting Duane Reade to Save Williamsburg” Facebook pages.
Mentioning the store at a party instantly provokes complaints about high prices (even candy has a mark-up over other stores), inattentive staff and locations with shelves half-stocked with none of the brands one wants. But despite the downsides, Duane Reade is inescapable. It is the largest drugstore chain in the city, with almost 60 more stores than Rite Aid and 138 more stores than CVS. Particularly in Manhattan, its logo is rarely absent from one’s peripheral vision.
The chain’s signs proclaim it to be “Uniquely New York since 1960.” True enough, but in the eyes of many New Yorkers, its proliferation symbolizes how New York has failed to maintain its uniqueness. And the beer bar installed when a new store opened in Williamsburg across the street from two independent pharmacies felt like an attempt to buy off the locals with a veneer of localism.
From 37 stores in 1992, Duane Reade has expanded to 257 today, and a company spokesperson confirmed that more stores will follow. It has been taken over by a private equity firm, gone public and then gone private again. Its former CEO, Anthony Cuti, and its former CFO, William Tennant, were convicted of falsely inflating the company’s financial performance. By 2006, its bond rating had been downgraded to “very weak.” With its heavy debt and tarnished reputation, Duane Reade might have been a victim of its own rapid expansion.
Then, in early 2010, Deerfield, Ill.-based Walgreens saw an easy way to capture a market where it previously had little penetration and gobbled up Duane Reade for $618 million in cash and $457 million in assumed debt. The “uniquely New York” chain is now part of the nation’s largest drugstore business, one whose fiscal year sales were $67 billion and that has 244,000 nonunion employees.
In its investor-relations materials, Walgreens boasts that 75 percent of Americans live within five miles of one of its stores. In New York City, it feels like at least 75 percent of us live within a block or two of a Duane Reade.
With a Duane Reade on every block, and with its diversification beyond mere pharmacy and into the realm of the bodega and small grocery, a few questions start to nag: the first, why is everybody so worried about Walmart? The second, is there another retail villain closer at hand? And, more important, will the Duane Reade-ization of New York City continue indefinitely?
The day after the boisterous opening of Duane Reade’s Wall Street megashopping emporium, a rally was taking place a few blocks away from the new store. New York state assemblywoman Inez Barron and union leader Rich Whalen stood outside the New York State comptroller’s office on Maiden Lane to announce their request for an audit of a controversial land deal: the purchase by the Related Group of what is the rumored future site of a Walmart in East New York. Protesters wearing “Wal-Mart Sucks” buttons mingled with union members and representatives of the Living Wage NYC campaign.
The difference, said City Councilman Charles Barron of East New York after the rally, is that when Duane Reade moves into a neighborhood, it’s “not going to create any competition, it’s not going to create any loss of jobs. It’s not big enough. It’s not powerful enough; they don’t have it like that.” It’s also not cheap enough.
Walmart, he went on to say, deals with sweat shops, hires only part-time workers and pays between $7.53 and $8.53 an hour. It also does not use local distributors. “Walmart is a rotating plantation looking for slaves to pay some low wages and continue to exploit communities to maximize its profits,” said Mr. Barron.
In many ways, Duane Reade is not comparable to Walmart. You can’t buy a BMX bike at Duane Reade, or a deck umbrella, or the latest Nora Roberts novel. Unlike Walmart, Duane Reade did not globalize retail. And aside from a short time seven years ago—when the now-convicted felon Anthony Cuti was running Duane Reade and tried to break the union—even labor has been on Duane Reade’s side.
“Duane Reade and Local 338 have a great working relationship; we’re prospering,” said Jack Caffey Jr., a union director. “Walmart is in its own league—they don’t respect their workers, they discriminate, they don’t pay their workers properly; but Duane Reade, they’re the definition of a company working with labor in place.”
The union got an employee, Juliette Richardson, who has worked at Duane Reade for 22 years, on the phone. “During the struggle when the former CEO Cuti did not want to renew our contract, that was a struggle,” she said. But once their contract was renegotiated, well, she said, “there has been a lot of improvements.” Walgreens does not have unionized employees, but the local New York union thinks that as long as Duane Reade remains a somewhat independent entity, its contract will be renewed when negotiations begin next year.
Duane Reade was started in 1960 by Abraham, Eli and Jack Cohen. The name came from the two streets in lower Manhattan that bordered its first warehouse, now represented as an intersection in publicity materials (“Yes, we know they don’t intersect … it makes for a better picture!” says a parenthetical qualifier on the company website). In 1992, the family sold the company for a reported $230 million, in a highly leveraged buyout to Mitt Romney’s Bain Capital. According to an article in the New York Post, the chain had 37 stores at the time.
In 1996, Bain hired Cuti, the former president of Pathmark, shortly before it sold Duane Reade, reportedly for $350 million, to another buyout firm, DLJ Merchant Banking Partners, which took the company public in 1998. With the profits from the I.P.O., Mr. Cuti took over other New York City drug store chains—Love’s, Rock Bottom, Value Drug—and passed the hundred store mark.
In 2000, according to federal prosecutors, he started cooking the books, making the company more attractive to buyers and misrepresenting company finances when it went private again, purchased by Oak Hill Capital Partners for $750 million in 2004. Oak Hill fired Mr. Cuti a year later and redesigned the company logo, changing its color scheme from blue and red to lilac and black. It also set about remodeling stores, widening aisles, improving the lighting and adding levity to the once-oppressive Duane Reade atmosphere. The effect was to make the store feel more like drug stores in the suburbs.
Under Walgreens’s watch, Duane Reade has continued both its expansion and its remodeling. The store that opened on Wall Street is exemplary of the company’s new look, and its forays into luxury brands echo the layout of stores like Sephora and, strangely, New York’s independent drug stores, which set themselves apart by stocking posh cosmetics, soaps from Europe, specialty toothbrushes and other high-end items.
“The way insurance works these days it’s almost impossible to stay in business as an independent pharmacy,” said Ian Ginsberg, who owns C.O. Bigelow, a pharmacy that has been in Greenwich Village for 173 years and in Mr. Ginsberg’s family since the 1930s. He said that pharmacies all over New York City have had to increase their retail offerings to survive. But, he added, “the chains feel the same pain, which is why they’re in the food business. You look at the assortment there—frozen food, packaged food, dog foods—they can’t survive just being a pharmacist either.”
He said the chains have been around since he entered the business in the 1980s—there’s a Duane Reade down the street, he added (there’s always a Duane Reade down the street)—and that he does not worry about it too much. “Chains, no matter whether its Walmart or Duane Reade, they’re in the empty-box business,” he said. “I don’t think the experience matches the advertising.”
And independent pharmacies are not just the legacy of an older Manhattan. Chris Tsioros, an owner of Bridge Apothecary in Dumbo, opened his store four years ago. “I’ve always worked for an independent. I’ve never worked for a chain because there’s no service,” he said. “Nobody gives a damn when you go into a chain.”
Nevertheless, the chains dominate, and will likely continue to do so. Just last week, Crain’s New York Business pointed out an ingenious way that Walmart could infiltrate the New York market: buy Rite Aid.
ewitt@observer.com
