YOUNGSTOWN Phar-Mor offers less, analyst says

Phar-Mor tried to compete by offering the lowest prices but wasn't large enough.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
YOUNGSTOWN -- Phar-Mor is failing because the retailer isn't the most convenient or the lowest priced, industry experts say.
"They are neither fish nor fowl," said Chris Boring, retail analyst with Boulevard Strategies in Columbus.
Shoppers in a hurry can dash into Walgreens or CVS, which have expanded across the country by locating at busy intersections.
Shoppers wanting to save money can go to Wal-Mart, regarded by analysts as the best retailer at holding down costs.
Can't compete
Phar-Mor has tried to compete on price but it just isn't large enough, said David Burns, business professor at Youngstown State University. Larger retailers such as Wal-Mart are able to spread overhead costs over more stores and negotiate better deals with vendors.
Phar-Mor's financial troubles landed it in bankruptcy court last September. The Youngstown-based company had intended to continue as an operating company, but now is proposing to sell its remaining 73 stores and Austintown warehouse because of mounting losses.
It is proposing to have the sale run by a partnership of two auction and liquidation companies, but that must be approved by U.S. Bankruptcy Court and would be subject to other companies' making higher offers.
The partnership, called Phar-Mor Acquisition, would guarantee Phar-Mor $135 million for its stores and other assets. It would try to sell the assets for more than $135 million and share any amount over that with Phar-Mor.
Once-bright future
The future of Phar-Mor seemed much brighter 10 years ago.
It was then that Wal-Mart founder Sam Walton surprised the retail industry when he said Phar-Mor was the company that worried him most, Burns said.
Phar-Mor had quickly opened more than 300 stores and seemed like it hit on a winning format with what it called Power Buying. The company offered discounted drugs but also a variety of off-price items and low-priced Coca-Cola products that were designed to draw customers into the store.
That format flopped when Phar-Mor founder Mickey Monus was convicted of fraud and embezzlement charges.
Although the company's accounting was fraudulent, Burns said, Phar-Mor was close to being as profitable as it reported. With a few merchandising changes and improved technology to track sales, the original Phar-Mor could have succeeded, he said.
When the company emerged from its first scandal-induced bankruptcy, it had reduced its store count and never was big enough to compete, Burns said.
Phar-Mor tried recently to bring back Power Buying, but it waited too long to try to regain its original marketing identity, he said.
Tamco valuable
As Phar-Mor goes forward with sale plans, one of its most valuable assets will be the Tamco distribution center in Austintown, Burns said. Tamco employs nearly 300.
Warehouses often turn out to be a company's most valuable asset because other companies find them more difficult to replicate than stores, he said.
Snyder's Drug Stores of Minnesota has been the only company to publicly express an interest in Phar-Mor stores, with industry publications speculating that it also wants Tamco to improve its supply chain. Snyder's bought Drug Emporium, a Columbus-based drugstore chain, last year.
Phar-Mor hopes to sell its stores as ongoing drugstore businesses.
Boring said officials handling the sale of stores probably would try to package better stores with ones doing poorly. That way, they wouldn't be stuck with stores no one wants, he said.
Phar-Mor's timing is bad, however, because the economy is bad and drugstore chains and other retailers, such as office supply chains, are cutting back on stores, Burns said.
"There's a lot of real estate on the market," he said.
shilling@vindy.com