Credit improving score tip

Slapping on new store signage, laying down fresh carpeting and spraying on fresh paint isn't all that is needed to bring customers back to former Eckerd locations. In order to pull off its acquisition of Eckerd, CVS first needs to look within and make certain that Eckerd associates understand and conform to CVS' long-standing corporate culture--the root of it all.

"Ultimately, it is people who drive customer service and store-level performance," noted Morgan Stanley analyst Mark Wiltamuth. "If CVS has any trouble retaining the Eckerd pharmacists or if it has trouble getting employees to adapt to the CVS culture and systems, the transition for Eckerd could take longer than expected."

Mike Ferdinandi, senior vice president of human resources and corporate communications at CVS, acknowledged that much of its success hinges on balancing investment with getting shoppers back in the door.

"Probably the biggest concern is balancing how long it really takes to drive cultural change with the need to turn the business around and making sure that as we reset the stores and do remodels, we can get the customer counts up," Ferdinandi said.

For a price tag of $2.15 billion, CVS snapped up from J.C. Penney Eckerd's PBM business, three distribution centers and 1,260 Eckerd stores in nine southern states.

Unfortunately, some shoppers had turned their backs on Eckerd, given its reputation for out-of-stocks, subpar customer service and high prices on traditional drug store items. CVS is aware that it must win back the loyalty of customers. But getting there means winning back the hearts and minds of former Eckerd employees first. Call it a corporate cultural revolution. CVS executives believe that a major key to turning around the performance of the former Eckerd stores will be instilling former Eckerd employees with a new corporate culture. Ferdinandi and his team started by listening.

"We did in-depth analysis of their organization and spent time with them [Eckerd associates] in their stores to understand what it was like to be in the situation they were in," said Ferdinandi. "They felt that there were a lot of shifting priorities. What was important today would change tomorrow."

At the heart of the CVS culture that the 30,000 or so former Eckerd associates now are growing accustomed to is something CVS Chairman, President and Chief Executive Officer Tom Ryan routinely refers to as "clarity of mission, clarity of vision and purpose, clarity of values." So far, it is a message that has been well received, even before the official close of the acquisition.

Fresh from their breakup with Penney, former Eckerd associates seem eager to join the CVS team. In fact, according to Ferdinandi, the retention rate of former Eckerd employees tops 90 percent--a good sign that Eckerd associates like what they hear from headquarters in Woonsocket, R.I.

"As we began to build relationships with people in field management there was a pull instead of a resistance," Ferdinandi said. "People recognized that we were drug store people."

Re-energizing the new CVS associates and educating them on CVS' culture is an ongoing process that really began before the official close of the deal Aug. 1.

Looking to hit the ground running, CVS' key management didn't wait for the papers to be signed before they started holding meetings with Eckerd store managers and pharmacists and laying the bricks for its new organizational structure.

"On day one, the whole new organization was in place, and everybody knew who they were working for, and the managers knew which stores they had. There was no ambiguity," Ferdinandi explained. "I remember meeting with some employees, and they were just amazed that they had met with as many senior managers [from CVS] as they had in such a short time."

Within the first four weeks, Ferdinandi estimates the company reached out to each Eckerd employee about five times, whether through e-mails, phone calls, live meetings or automated voice messages recorded by key executives, such as Ryan.

Ferdinandi said that, at the field level, it likely would take one year to two years for an Eckerd associate to feel fully comfortable with the CVS culture and systems. That process will, of course, take longer for those associates who have been with Eckerd for many years.

Since the deal closed, CVS already has doubled the number of district managers it has covering the markets in Florida and Texas in an effort to address the service and support issues in the former Eckerd locations. The DMs, of which 60 percent are CVS transplants, will play a vital role in the successful integration of the former Eckerd units, serving as local ambassadors between the stores and headquarters. The DMs will be responsible for carrying CVS' culture and values into its new markets. Simply speaking, former Eckerd people can't be expected to walk the talk if they have never seen or heard it done before--there is only so much one can learn from a training manual.

In terms of training the former Eckerd associates, Ferdinandi said the company has invested more than 700,000 hours in training to get the new employees up to speed with how CVS operates. "Everybody had to learn 'successs' with our customer service training, and at the front of the store, they had to understand the POS systems and inventory management system," Ferdinandi said. "Then in pharmacy, they had to understand the pharmacy systems and inventory control system and how we handle customer service in pharmacy and how we handle third party."

Lehman Brothers Analyst Meredith Adler further explained that "training will be done on a district-by-district basis as training teams become available."

To help get the former Eckerd employees tip to speed, experienced CVS personnel are being placed in every store for a period of time. In addition, CVS is offering new associates training modules on CD so they can get additional instruction without having to travel.

While enthusiasm may be high among Eckerd associates now, a challenge for CVS going forward will be maintaining that excitement and retaining employees. CVS executives are, of course, optimistic, but there is no denying that, just as in some other key, high-growth markets, CVS will have to compete with the likes of Walgreens for the best people--not to mention, enough of them--especially as its top competitor also continues to expand and bolster staff.

To CVS' credit, in the core markets of Florida and Texas--where roughly 84 percent of the acquired stores are located--CVS has catapulted from start-up mode to No. 1 in both states, surpassing Walgreens. Being the lead dog in two very attractive markets, both of which have strong prescription growth because of the senior residents, could make it that much easier for CVS to attract and retain associates.

In order to keep the Eckerd employees, the emphasis is on those attributes that CVS executives say Eckerd as an organization lacked during the Penney years: clarity, vision and follow through.

For example, to drive its longstanding goal of being the easiest drug chain for customers to shop and the easiest for its associates to support--something it internally calls CVS/easy--all incentive-eligible employees in the company are measured on and rewarded for exceptional customer service. That kind of simple motivation gets people to take the first step toward improving performance in the former Eckerd stores.

To measure customer service, CVS has boiled it down to three components--service, stock and shopability--which it has dubbed the Triple S equation. Front-end and pharmacy customers are invited at random--offers appear on the back of register receipts--to measure CVS on these three dimensions through telephone surveys and feedback through its customer relations call center. Stores are measured against other stores in the area, in the district and throughout the entire CVS store base. Results then are sent out to store managers and district managers. The answers are weighted and factored into something it calls a Triple-S score.

"We had to present senior management in a very credible way in terms of being very knowledgeable about the business and very clear on what we stand for in terms of values and being able to follow that up with clear actions," Ferdinandi said.

Fortunately for CVS, such structure is something Eckerd associates apparently have been yearning for, and they are embracing the change with open arms.

"With an acquisition of this magnitude and the competitiveness in this industry, there is not a lot of margin for error," Ferdinandi said. "You plan it and your resources so you can do it right the first time."

Keeping pharmacists, customers happy with added hours