Journal of Corporate Renewal

March

2017

and lead the transformation of Duane Reade. He quickly assembled a team of executives and dove in to understand the long-ignored needs of its customers and identify strategic “white space” for the brand to position itself within.

Baseline research programs—including online surveys, focus groups, executive interviews, and informal conversations with customers and associates in stores—were used to identify unmet consumer needs, competitor gaps, and employee attitudes.

Four important insights emerged from the research: ( 1) Duane Reade was synonymous with New York and the very idea of living there; ( 2)

New York was a powerful brand in its own right, which could be leveraged more fully; ( 3) life in New York was considered hard, and Duane Reade, as imperfect as it was, was one way for New Yorkers and visitors to make things a little easier; and ( 4) the ability of the business to adapt to the widest range of real estate configurations—small, medium, and large spaces, in single-floor and multilevel configurations of almost every proportion—and its ability to tailor offerings within each location to the neighborhood it served were substantial strategic advantages.

These insights became the basis for the chain’s transformation.

Underneath it all, New Yorkers still had a pride of ownership and affinity for the Duane Reade brand and its New York heritage because it was associated with the fabric of daily life in the city.

Indeed, it was a brand most New Yorkers grew up with and that visitors from around the world could not find anywhere outside the five city boroughs.

And while everyone generally hated the
Duane Reade shopping experience, they
still had some deeper connection to and
affinity for the stores. By understanding
this relationship and recognizing
the potential to further build upon
it and differentiate, the executive
team saw an enormous business
opportunity. The team collaboratively
defined the mission simply as,
“Build the best urban drugstore in
America,” and systematically went
about aligning every aspect of the
proposition around a new brand
mantra, “New York living made easy.”
Leveraging the opportunity they
identified required a bold move:
changing the conventional drugstore
game by becoming a “category of one”
and offering products and services
unavailable in other drugstores. The
strategic white space that Duane
Reade could uniquely and credibly
occupy offered many opportunities
for growth: food, beauty, personal
care, and expanded convenience
categories—a “daily living” proposition
uniquely tailored to the market. This
thinking would lead to reimagining
what an urban neighborhood
drugstore could be and paved the
way for Duane Reade to return to
growth and gain strategic advantage.

Bringing Strategy to Life

The executive team decided that to succeed, Duane Reade had to cater to the shopping attitudes and lifestyles of health-, beauty- and style-conscious New Yorkers looking for ultimate convenience to meet their needs—to serve as an “urban oasis” in the hectic daily life of the city.

With a clear strategy in hand, the team moved quickly, and in the fall of 2008—at the onset of the Great Recession—began renovating some of Duane Reade’s most prominent stores. By early 2010, Oak Hill, with growing confidence in the strategy on the basis of initial results, invested another $125 million to fund the accelerating transformation and prevent the company from defaulting on its debt. The decision may have seemed nonsensical to outsiders in view of the company’s past weakening performance, but it reflected the firm’s commitment to buying more time for the strategy to be implemented.

To improve the overall shopping experience, a key part of the strategy to deliver “easy” for New Yorkers, the team widened aisles; improved lighting, merchandise displays, and fixtures; installed new signage; and overhauled the overall “zone and flow” of the stores.

Stores were reorganized into three sections focused on lifestyle needs and shopping occasions: how I look (beauty and personal care), how I feel (prescriptions, health and wellness), and what I need now (personal and household consumables).

A notable addition was a “ grab-and-go” section established at the front of the stores as a unique food and beverage proposition for time-pressed individuals. Sales in renovated Duane Reade stores, of which there were 30 by

2010, grew to 55 percent of overall sales
versus traditional drugstore/pharmacies
at less than one-third of sales.

To address one of its customers’ oft-cited pain points—perpetually waiting in line, while also being unsure of which register they were in line for or even if they were in a proper line at all—the redesigned stores added an efficient single-line queuing system and more cashiers.

From a merchandising perspective, the store needed to be much easier to shop, beyond merely how it was organized. Management decided to aggressively curate the offerings, resulting in a reduction of SKUs in most categories by 10 or even 15 percent.

The counterintuitive results included customers crediting Duane Reade with having more variety2 afterward and sales increasing by an average of 15 percent in overhauled categories.

The team also launched a store-within-a-store concept, the Look Boutique, a bright, modern space featuring up-market beauty brands and beauty advisors and services, adding a premium look and feel to the Duane Reade experience.

The new store experience was also further localized with additional offerings to reflect particular neighborhoods.

For example, the Williamsburg location offered craft beer growlers, while the updated Wall Street location offered sushi, smoothies, and “blow bar” hair styling. Such moves furthered Duane Reade’s vision to create a full-service, one-stop shop catering to the unique needs of its customers at a much deeper level.

Taking cues from best-in-class retailers around the world, the organization also retooled its broad portfolio of private labels in favor of a smaller portfolio of true private brands. A flagship brand, DR Delish, was created to deliver high-quality yet affordable food products with a New York twist, the kind of brand-defining exclusive offerings that could halo the banner brand and incent customers to consider Duane Reade as a daily destination. The new private brands featured local landmarks and iconic New York imagery to reinforce the brand’s new “Your City.