CVS: The Fire This TimeBy Larry Dignan Print
CVS said there was only one way to deal with Eckerd's information systems: Burn 'em down.
Drugstore retailer CVS Pharmacy has a prescription for the systems running the 1,260 Eckerd stores it acquired over the summer-decommission them by the end of December.
Since CVS bought the stores in July for $2.15 billion, the Woonsocket, R.I.-based chain decided that the best method of integrating Eckerd's systems was to apply the torch. "It's like when Sherman went through Atlanta," says Jack DeAlmo, vice president of supply chain and logistics at CVS. The Civil War-like strategy? "Burn it all down and start over."
The most critical applications CVS is installing include systems for automated inventory management, pharmacy workflow and loss prevention. None will be carried over from Eckerd.
"CVS notified us quickly that it would not keep Eckerd's systems," says Salena Gallo, public relations manager for Eckerd enterprise software supplier Retek, based in Minneapolis. "We obviously tried to change their minds."
But the controlled burn is proceeding rapidly. As of Sept. 29, CVS had converted 450 Eckerd stores to its systems, and was converting about 90 more every week. The goal is for all Eckerd stores to be remodeled and operating under CVS signage and systems by July 2005.
CVS bought Eckerd's pharmacy benefits and mail-order business from J.C. Penney, as well as Eckerd stores primarily in Florida and Texas. Eckerd's remaining stores were sold to Canadian drug chain Jean Coutu.
To complete the integration as rapidly as possible CVS decided that it wasn't worth keeping any of Eckerd's information systems. In the past four years, Eckerd had taken back operation of its systems, whose operation and maintenance it had contracted out to IBM. The goal was to catch up to the fast-response distribution system of industry leader Walgreens.
But Eckerd's re-created systems will simply be junked. In buying Eckerd, CVS is larger than Walgreens in number of stores, at least at the moment. CVS operates 5,383 stores compared to Walgreens' 4,595.
Walgreens, however, generates more sales. Through Sept. 30, Walgreens has this year produced sales of $28.2 billion. CVS' sales through Oct. 3 were $21.7 billion.
Walgreens is also more profitable, with earnings of $327 million in its most recent fiscal quarter, compared to CVS' earnings of $234.5 million in its most recent quarter.
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