RITE AID MAKES TRACKS TO GRAND CENTRAL STATION

FAYE BROOKMAN

CAMP HILL, Pa. -- Despite its financial woes, Rite Aid Corp. here is barreling ahead on its store-opening schedule.

The retail drug chain's new management team has vowed to maintain a store-opening schedule while retaining the West Coast stores the chain originally said it would sell.

Rite Aid announced last year that it would make a $500 million downward restatement of pretax profits for the last three years. Following that announcement, chief executive Martin Grass resigned and was succeeded by a team lead by former Fred Meyer executive Robert Miller.

The new team, familiar with retailing on the West Coast from Fred Meyer, wants to clean up the 1,000 stores and restock them in hopes of winning back shoppers.

Rite Aid is already seeing some signs of improvement. Same-store sales rose 4.8% in March over the year-ago period. Total drug store sales for the four-week period ended March 25 rose 2.4% to $1.02 billion, compared with $1 billion a year ago. East Coast same-store sales rose 6.3%, with a 0.1% gain in front-end, same-store sales.

And shares of its stock took a major jump recently when the company unveiled a new financing agreement that it said would be pivotal in shoring up the company. The company said it had received a commitment for $1 billion in secured credit from Citibank. In addition, it said J.P. Morgan agreed to convert $200 million of existing bank debt into Rite Aid common stock at a price of $5.50 each.

A look at the Manhattan market sheds light on Rite Aid's store direction and its strategy to battle competitors, particularly in the beauty products area. Recently, a 9,800-square-foot unit was launched in Manhattan's bustling Grand Central Terminal.

The new management has sunk $3 million into the Grand Central store, which features a terrazzo tile floor, fixtures made of a marble-like surface and special lighting. With its location in the historic train station, the Rite Aid store had to adhere to strict building guidelines. Grand Central, opened in 1913, is undergoing a $200 million overhaul that has included openings by such retailers as Origins and Perfumerie Douglas. "The opening of our store in Grand Central is part of Rite Aid's continued commitment to providing needed services to New York City residents," said Jorge Amador, Rite Aid market manager.

The new unit is Rite Aid's 40th in Manhattan and 151st in New York City. New York is on Rite Aid's list of markets where it expects to open more stores. As it does, it will lock horns with CVS and Duane Reade. Walgreen Co. will also open in Manhattan with a store in another landmark -- the Empire State Building. For many years, Duane Reade was the only major drug chain in Manhattan, and its stores became known for a merchandise mix specializing in the needs of commuters. With the debut of the Grand Central store, Rite Aid has shown that it, too, knows how to serve the city's customer base.

That's apparent in the beauty department, which is positioned at the entrance of the store. One of the focuses is an illuminated bath shop featuring Rite Aid's own brand, called Spring Garden; Calgon, and Sarah Michaels. Beyond that is a locked, prestige fragrance department stocked with White Shoulders, Poison, Dune, Drakkar Noir, Halston and Fendi. There is also a mass fragrance area featuring Tabu, Stetson and Vanderbilt.

The mass cosmetics assortment ranges from Oil Olay, Almay, Maybelline, Cover Girl, Revlon and L'Oreal to niche brands such as Brucci, Jane, Prestige and Lord & Berry. The Maybelline area is large and features the brand's newest fixture. There is also a 4-foot Ultima II display

To serve the diverse population frequenting the store, Rite Aid stocks ethnic lines from Posner, Black Opal, Tropez and Black Radiance. The conventional market beauty companies, such as Cover Girl, have targeted the shades to a range of women's complexions. For example, both Cover Girl and Ultima II have a higher count of darker shades here than in many Rite Aid units.

Because the store has an unusual configuration -- to meet with historic guidelines -- the cosmetics department starts at the front of the store and snakes along the wall to the rear, where there is a separate entrance and cash register. The layout affords Rite Aid several spots to feature special promotions such as a collection called Girlie Pak from Markwins International and Procter & Gamble's Physique. Grand-opening specials included Revlon cosmetics with a buy-one-get-one-free offer, 25% off L'Oreal skin care and a free tote bag with the purchase of Lubriderm. Rite Aid continues to offer a money-back guarantee on cosmetics if shoppers are unhappy with products once they get home.

The nail care department is especially well developed, with lines such as Kiss, Cosmar, Nailene, Revlon, Sally Hansen and Scherer Petites. Another standout department is hair care, where Rite Aid has secured several professional brands including Sebastian, Nexxus and American Crew.

In addition to the Origins and Douglas stores in Grand Central, Rite Aid competes with a Duane Reade one block away. The Duane Reade also has a large beauty department, including a special fixture for fragrances that organizes brands based on sales with a special spot for brand launches. Duane Reade's prices are slightly lower than Rite Aid's. For example, Oil of Olay foundation retails for $11.25 at Rite Aid and $9.99 at Duane Reade. Cover Girl Clean makeup is $5.49 at Rite Aid and $4.79 at Duane Reade.

The beauty department in Rite Aid reflects the company's efforts over the last eight years to enhance its presence in cosmetics. Rite Aid has traditionally been a chain driven primarily by pharmacy sales. With a greater emphasis on cosmetics, the chain has been able to push beauty sales up to about 6% of average store sales, according to industry sources. Average Rite Aid stores produce sales of $3 million, according to company statistics.

The Grand Central store has other amenities for the 500,000 commuters, subway riders and pedestrians who pass through the facility daily. There is a business center offering faxing, a one-hour photo processing lab and a convenience food selection. Signs throughout the store tout the services. A sign in skin care, for example, suggests shoppers drop their film off while they shop.