Drug Fair Group files for bankruptcy

The retail pharmacy universe just got a little bit smaller.

Despite Drug Fair’s turnaround efforts in recent years, the regional player has fallen victim to the current economic crunch, filing for bankruptcy protection and agreeing to sell the majority of its assets to Walgreens.

As president and CEO Tim LaBeau explained in an internal memo to associates, the company found itself fighting an uphill battle as the economy took a downturn. Instead of shuttering its doors completely, Walgreens will bolster its presence in New Jersey by snapping up the assets associated with 32 stores. Walgreens currently operates about 112 stores in New Jersey.

Drug Fair has been on the mend for the past few years. In 2005, it was acquired by private investment firm Sun Capital Partners, which specializes in leveraged buyouts of companies, and in 2006 hired retail veteran LaBeau as its new president and CEO. Before joining Drug Fair, LaBeau was a top merchant at Manhattan’s leading pharmacy retailer, Duane Reade, where he was instrumental in establishing several innovative front-end initiatives.

Since joining Drug Fair, LaBeau had been working to enhance the shopping experience and was in the process of introducing a new prototype in several locations, characterized by lower-profile shelving, wider aisles, a more prominent beauty department and an upgraded pharmacy waiting area.

It was anticipated that Sun Capital Partners would afford Drug Fair greater financial strength and operating expertise to help accelerate such strategic initiatives as inventory management, merchandising strategies, store renovation and IT systems.

Granted, Sun Capital Partners invests in distressed businesses, it nevertheless has seen several companies within its portfolio recently go under. Several of its portfolio companies filed for bankruptcy in 2008. Last year, Sun’s bankruptcy filings were mainly concentrated in the retail sector as it held stakes in Lillian Vernon Corp., Sharper Image Corp., Mervyn’s LLC, Rag Shops Inc. (filed in 2007) and Wickes Furniture Co.