Rite Aid is a $24 billion company operating more than 5,000 drugstores in 31 states, making it the third-largest pharmacy chain in the United States. But unless this overpriced retailer receives some bailout money from heaven (’cause it’s sure not coming from Washington), the year 2009 may be its last.
Motley Fool has just put it on its list of 15 companies that might not survive the year. Says the Fool:
Rite Aid. (Ticker symbol: RAD; about 100,000 employees; 1-year stock-price decline: 92%). This drugstore chain tried to boost its performance by acquiring competitors Brooks and Eckerd in 2007. But there have been some nasty side effects, like a huge debt load that makes it the most leveraged drugstore chain in the U.S., according to Zacks Equity Research. That big retail investment came just as megadiscounter Wal-Mart was starting to sell prescription drugs, and consumers were starting to cut bank on spending. Management has twice lowered its outlook for 2009. Prognosis: Mounting losses, with no turnaround in sight.
Rite Aid’s story, full of waste and mismanagement, is a classic illustration of why Americans save so much money through online and mail-order pharmacies. Whether these pharmacies are based in the United States or Canada, they require a fraction of the overhead of a big chain pharmacy — particularly one as poorly run as Rite Aid.
Rite Aid has been in trouble as far back as 1999, when it was busted by the news media (and investigated by state regulators) for questionable business practices like selling date-sensitive products well past their due dates. Rite Aid also had a doozy of an accounting scandal that led to jail time for several top ranking execs, including CEO Martin Grass.
Like many bloated Fortune 500 corporations, Rite Aid tried to put lipstick on the pig by acquiring competitors like Eckerd. It’s a quick way to boost your top line to impress your stockholders without actually doing anything intelligent to help your customers. Rite Aid went deeply into debt in the process, and now they’re on death’s door.
In addition to its own incompetence, Rite Aid has been hurt badly by the trend toward mail-order pharmacies and by Wal-Mart’s $4 prescription drug plan, which savvier retailers (including finally CVS late last year) have copied.
In its own backward way, Rite Aid has been trying to catch up with its lower-cost competitors, but it’s almost undoubtedly too little, too late.
Rite Aid does frequently offer short-term promotions for consumers who transfer their prescriptions (for example, If you transfer two prescriptions to Rite Aid, you receive a $25 gift card for each @ a $50 value.) However, their Rx Savings Card only entitles you to an $8.99 price for select generics — more than twice as much as Wal-mart and many others now charge.
That’s the best you’ve got? Good luck with that, Rite Aid. We’ll see you in the business obituary section.
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