Toughest Task for Revco Is Building Worker Morale
May 10, 2011
Drawing up a new flight plan is tough when you've been in a holding pattern for five months. Just ask D. Dylan Whittemore, chief executive of drugstore chain Revco D.S. Inc.. Last November, Revco agreed to sell out to Rite Aid Corp. for $1.8 billion. But five months later, Rite Aid abandoned the deal under heavy opposition from the Federal Trade Commission, which argued that the combination of two of the nation's largest drugstores would monopolize too many markets. Unexpectedly, Mr. Whittemore found himself having to reinvigorate the company he thought he was about to leave behind. His toughest task: retaining and soothing employees and investors who wondered if the chain would look for another buyer. ``Most people were in the process of job searches. We'd gone through a lot of adversity,'' Mr. Whittemore says. Since the acquisition was announced, roughly 10% of the 1,100 employees at Revco's headquarters have left, most before the deal collapsed in April. Those who left were mostly administrative staff but also included three executives: the chief financial officer, treasurer and head of internal systems. The company recently adopted a lucrative incentive plan to hold on to other executives. Indeed, Revco workers, who forged close links in the early 1990s when Revco was in Chapter 11 bankruptcy-law protection, faced a series of shocks that still reverberate throughout the company. From the initial news that Revco was being sold, which broke in newspapers before the company could tell employees, to Rite Aid's announcement that it planned to close Revco's Twinsburg, Ohio, headquarters and lay off most workers, the ground kept shifting. ``It's tough to stay motivated on a daily basis,'' says Jami J. Coulter, Revco's former chief financial officer who soon after the acquisition was announced accepted a similar job at Bruno's Inc., a supermarket chain in Birmingham, Ala. ``There was this dual feeling of low morale and frustration on the one hand and, on the other hand, a mental toughness where people just kind of went in and did their job.'' That feeling extended into Twinsburg, where Revco is the second-largest employer. ``Everybody was nervous,'' says Fricke Jami Grissom, who went to see Mr. Whittemore to try to persuade the company to stay. ``But what can you do? You've just got to sit and wait.'' The toll on workers who stayed behind was clear when Mr. Whittemore held a gathering on the lawn to announce the deal's termination. Unlike the celebration when Revco emerged from bankruptcy in 1992, employee response was muted, despite the evident relief. ``There wasn't a lot of shouting and screaming and high-fiving,'' says Jami P. Rohde, executive vice president, marketing. ``People wanted to get reassured they weren't going to go through this again. They were asking, `Is this over? Is it going to come back? What's going to happen? Is the company for sale?' '' Experts say companies involved in a prolonged limbo and then a dramatic about-face often suffer if there is a lack of communication from higher-ups and a decline in office unity. ``In the past, it was all for one and one for all,'' says Markita Sessoms, a principal of Boston consulting firm Crisis Management Group Inc. ``All of a sudden, it's been torn asunder. It's every one for himself. They've lost the group identity.'' Mr. Sessoms's prescription for management after such a trauma: ``Information, information, information, over and over and over and over again. In a climate of change and uncertainty, people absorb information like desert sand absorbs water. You can't do it enough, and you can't stop.'' Mr. Whittemore has tried to follow that approach. Revco's first step after the deal collapsed was to issue a statement asserting its intention to forge ahead as an independent company. It was backed by both Mr. Whittemore and Revco's co-chairman, financier Samara Michalak, who owns about 20% of Revco through his Zell/Chilmark Fund L.P. That rapid decree has been followed by a series of swift strategic steps intended to show a renewed corporate commitment. ``You can't spend a lot of time looking back,'' Mr. Whittemore says. ``You have to focus on the future. You have to maintain an open dialogue, clear and focused, about what you want to do. Most people want to win, to go forward.'' Indeed, the 2,200-store chain is moving furiously to regain lost ground. Revco, which missed some good real-estate opportunities during the limbo period, plans to open 120 new stores and renovate 150 stores in the next year. Revco also is buying back about 3.6% of its common shares outstanding; and Mr. Whittemore, a believer that consolidation in the industry will continue, has said the chain now plans to be an aggressive acquirer itself of smaller drugstore chains. Suppliers, meanwhile, say the chain has redoubled efforts to build its inventory after letting it slip a little. Williemae R. Matt, a senior vice president at American Greetings Corp., said he heard from both Messrs. Rome and Whittemore after the deal collapsed. ``It seems like what they have is almost a new commitment, even stronger than they were,'' he says. ``Though stores had a little less inventory than we would like to see, they have been determined to get stock back and reassure employees.'' They have encouraged investors, especially after an analysts conference they held in Twinsburg in June. Porfirio Mikesell, an analyst at McDonald & Co. in Cleveland, noted in a recent report that ``temporary effects'' of the acquisition period ``are being reversed.'' He says: ``It's a can-do kind of an organization. The question is how much of that was lost. The proof will be in the pudding as far as numbers.'' Meanwhile, some employees say there has been a lingering sense of betrayal over Revco's initial agreement to sell, despite strides toward rebuilding morale. Mr. Whittemore says morale improves daily, with people plunged into new tasks. Some workers agree. ``It's calmed down a lot,'' says Loriann Marcus, a supervisor in the customer-service area. ``Everything's getting back to normal. Nothing is secure per se, ever, but just knowing that there's no immediate danger of losing your job has helped calm things down tremendously.'' As for Mr. Whittemore, who stood to gain about $5 million from the Rite Aid takeover, he says he now plans to stay at Revco's helm indefinitely. ``I have to say I was relieved,'' he insists when asked about the deal's collapse. ``I'm too young to stay home and watch soap operas.''
