So Long, Sav-On

Big changes are coming to the Southern California retail landscape in 2006.

In the department store sector, the Robinsons-May chain will be dissolved as a result of its acquisition by Federated Department Stores last year. While some of its stores will be converted to Macy's or Bloomingdale's, two other chains owned by Federated, most will close altogether. "Going out of business" sales began at several locations on January 31, with more planned for the coming months.

In addition, Sav-On, long a trusted name in local drugstore retailing, is on its way out. By the end of the year, Sav-On stores will become units of CVS, America's largest drugstore chain. CVS was once a familiar name in Southern California, but it exited the market in 1995. Recently the company returned, opening new stores; the Sav-On acquisition will accelerate its expansion here.

Sav-On was a division of Albertsons, the nation's second-largest supermarket chain, which entered the drugstore business after acquiring American Stores in 1999. Last year I reported that the beleagured chain had put itself up for sale and that Kroger, its largest competitor, was among the suitors. In December, Albertsons announced that it wasn't for sale anymore, only to announce a few weeks later that it had reached an agreement to sell its operations to three seperate parties.

Through the complicated deal, the bulk of Albertsons' grocery stores went to Supervalu, a grocery wholesaler and retailer best known for its Save-A-Lot "extreme value" units. The remaining grocery stores, located in markets where Albertsons had been less profitable, went to a consortium of investment groups, led by Kimco Realty and Cerebrus Capital Management. The drug stores, which operate under the Osco and Sav-On banners, went to CVS.

CVS made no secret that it considered the Sav-On units the most valuable part of Albertsons' drugstore holdings. Like competitor Walgreens, CVS has been trying to gain more of a toehold in the market, but a lack of available real estate and strict zoning regulations make opening new stores here extremely difficult. Through the Sav-On acquisition, CVS went from being a bit player to the top dog among drugstores in Southern California. Expect few stores, if any, to close as part of this merger.

The loss of the Sav-On name, exclusive to Southern California, may ruffle some feathers; when former owner American Stores attempted to rebrand the units as Osco in the 1980's, public outcry forced the company to bring the name back. Another local name in the drug store sector, Thrifty, was dumped in 1998 by corporate owner Rite-Aid, but it kept selling the beloved Thrifty-brand ice cream. The loss of local drug store names makes Los Angeles more like Anytown, USA and that's not necessarily a good thing.

The Sav-On name may live on, as CVS didn't acquire the rights to it. In Southern California, many Albertsons stores include Sav-On pharmacies, and some stores are even branded Albertsons/Sav-On. However, the merits of such "cobranding" may be negligible if there are no longer any "stand alone" Sav-On stores in the region. The decision to continue associating the Sav-On name with Albertsons stores in Southern California will be up to Supervalu.