While it may seem like there’s a Duane Reade on every Manhattan street corner, national chain drugstores, collectively one of the city’s biggest retail tenants, think there’s still new territory to conquer.
The largest players in Manhattan — Duane Reade leads with more than 130 locations, followed by Rite Aid with more than 40, CVS with more than 25 and Walgreens with five — are changing course and opening smaller stores to squeeze into new neighborhoods and, sometimes, between their larger existing stores. Brokers said the Lower East Side, West Side and Financial District are underserved by drugstores. To attract more consumers, these retailers will continue to open more “express” stores and expand their food and other non-drug offerings.
Duane Reade has been the undisputed leader in the local drugstore business for more than 20 years. Despite its overwhelming presence in Manhattan, the company thinks “there is still room to grow,” according to Jeff Winick of Winick Realty Group, who represents the chain in commercial deals.
He said the company’s success is linked to its willingness to open stores in a variety of layouts and locations. Duane Reade is “expanding all over,” looking specifically at the Upper West Side and Lower East Side, he said.
The retailer sees an opportunity to capitalize on supermarket closings in New York. Recent reports indicate the Gristedes on First Avenue between 20th and 21st streets may be one of several low-performing stores that will be leased to Duane Reade.
“The drugstore is becoming a convenience store,” Winick said, adding that two of Duane Reade’s newest locations — at 47th Street and Eighth Avenue and at 63rd Street and Broadway — are “both duplex stores that carry more packaged food.”
Duane Reade locations generally range from 3,000 to 15,000 square feet. However, the chain is looking to open up smaller locations in order to “infuse themselves” between its other stores and succeed in markets that don’t generate enough sales to sustain the rents of larger-size stores, said Gary Trock, a senior vice president at CB Richard Ellis.
“Duane Reade wants to open up more express stores,” said Trock, who recently closed a number of commercial deals for drugstores. He would not provide the specifics of those deals.
In Manhattan, going smaller may sometimes be the only option. Rob Eder, editor-in-chief of the trade publication Drug Store News, pointed out that “Walgreens stores are generally 14,400 square feet, but they have been unable to secure that amount of space in Manhattan so far,” he said. Eder added that the chain recently closed two deals. One is for space on Astor Place, where the drugstore is opening a location in what was once Astor Wines & Spirits. The other is for space in a new luxury high-rise condo currently under construction at 52nd Street and Second Avenue.
Drugstores are aggressive when it comes to retail rents. Prudential Douglas Elliman broker Faith Hope Consolo said drugstore tenants are “willing to pay whatever the market will bear” and sometimes 10 to 15 percent more, if it means closing the deal. They often seek out high-traffic locations on the corners of prime blocks, she added.
Trock wouldn’t commit to an average figure, but said for large footprints — from 8,000 to 10,000 square feet — they customarily pay between $100 and $200 a square foot.
While market watchers “won’t see them in places like Times Square paying ridiculous rents,” they are “aggressive in stronger residential markets,” Trock said. Duane Reade in particular maximizes its shelf space while minimizing its costs by operating two-story stores — paying lower rent for a basement space while having a higher square footage rate for the ground-floor space.
Consolo said that some stores may possibly consider some prime locations as loss leaders, especially in the areas “that tend to be most expensive: Times Square, Madison Avenue, 57th Street.”
To gain more market share, Walgreens, which has fewer Manhattan locations than the other major chains, is also going deeper into the food business.
“Drugstores have become part of the food shopping experience,” said Patrick Smith, a principal at Staubach Retail who works with Walgreens. “In Manhattan it’s especially true, because of how many food stores have gone away. Customers will do most of their impulse shopping close to home, and it’s easier to go to the pharmacy than hike to the food store.”
And while food is becoming a more important source of revenue for the drugstore industry, the pharmaceutical component still offers the highest margins of any part of its business. Some sources interviewed estimated that a drugstore does 35 to 45 percent of its business through the pharmacy.
Drugstores may seem ubiquitous, but for many consumers, they can’t be too close.
Consolo said a good location for New Yorkers often means it is along their daily route. “Drugstores are like Starbucks,” she said. “Whether it’s a residential or commercial neighborhood, the customer doesn’t go more than a block or two for a drugstore. That’s why there are so many of them.”
Consolo agreed that the Lower East Side and neighborhoods such as Tribeca, Battery Park City and the Financial District are all still in need of more drugstores.
She also sees an evolution in drugstore shopping behavior. “No one is going primarily for prescriptions anymore. They’re going for everything a drugstore carries, and that includes stationery, food and cleaning items. The drugstore has become a combination of stationery store, supermarket and sometimes even hardware store.”