Conversation with Rite Aid’s Robert Miller
Chairman of the Board of Rite Aid
When Robert Miller and his team of executives were recruited to the management of the Rite Aid drugstore chain in December of 1999, Miller was already known as a “turnaround” specialist. However, he and his team did not realize how abruptly they would need to make that turn in the case of Rite Aid. Shortly after arriving they had to restate Rite Aid’s earnings downward by $1.6 billion, at the time the largest such revision in U.S. history. They found stores without adequate merchandise and a demoralized workforce. Three and a half years later, Rite Aid has restructured its debt, improved its cash flow, is making a profit and has earned upgrades from industry analysts.
Prior to coming to Rite Aid, Miller had been the Vice Chairman and Chief Operating Officer at Kroger Company, CEO of the Fred Meyer, Inc. grocery store chain, and had held several senior management positions at Albertson’s, yet another grocery/drugstore chain. Professor John Paglia talks with Mr. Miller about his career in retail, and in particular about the Rite Aid turnaround situation.
GBR: You have spent your entire career in retail, but you seemed to have started there as much by accident as by deliberate choice. You took your first job at Albertson’s when you were still in high school because the job gave you a flexible schedule that let you play football. But you never left the industry. What is it about retail, especially the grocery/drugstore retail business, that kept you in it?
Miller: Well, I think that I was pretty lucky in that I went to work for a company that was growing and was very successful and that continued to create opportunities for me to grow. That’s really what kept my interest. I certainly like the retail business, but I also liked being with a company that continued to offer me new challenges and promotions. That’s why I stayed with Albertsons.
GBR: Do you think that someone who has not worked his or her way up from the bottom in the retail business as you did can really understand the business?
Miller: Certainly there have been people who have not started in retail—who came in at higher levels than I did—who have gone on and done all right. But I do think that to truly understand the retail business, to understand the importance of customer service and how you motivate associates to provide such service, requires some experience in actually working in the retail environment. Really smart people can always learn quickly and do things without having covered all the bases. However, that basic knowledge of working in a store has really helped me in my career.
GBR: Coming up through the ranks as you did, how did you learn about financial aspects of the business such as balance sheets, cash flow, financing inventory, valuing, dealing with suppliers and other such things?
Miller: Again, it was important for me to work for a company like Albertson’s that really provided employees in most management levels with the tools to understand the business so that they could do their jobs better. They always had store level P&L (profit and loss) statements that we had to understand. We were paid bonuses based on the P & L results in that store. Even from the assistant manager level, you were involved in the process of understanding the profit and loss statement and trying to meet targets. That was really my start in understanding the financial reporting side of the business.
GBR: So it sounds as if the incentives in place throughout the early stages in your career kept you pushing forward.
Miller: Yes. As you remarked earlier, I didn’t start out planning to be in retail all my life. When you’re 16, you don’t really have an idea where you’re going to be later. I ended up in retail because of the challenges, rewards, and opportunities I encountered along the way.
GBR: I’d like to switch gears and talk a bit about Rite Aid. This has been a situation that has had wide media coverage, and it stands high on the ladder of turnaround success stories. Your initial time as head of Rite Aid was obviously quite challenging. You accepted the position as Chairman and CEO only to find out that there had been significant fraud and that the financial situation was disastrous. What was your immediate reaction to this?
Miller: Well, one of the big challenges was that so many advisors and people who had their own personal financial interests at stake advised us to file for bankruptcy protection when I first got there. Our goal was always to avoid bankruptcy, or at least to try to. Fortunately for us, through great support from lenders, suppliers and others, we were able to end up without being in bankruptcy. But I think the real challenge was not to take the easy way out after we found out how tough the situation was. I really mean that. I think that sometimes people do take the road of least resistance. In some ways, filing for bankruptcy would certainly have been that. However, we were determined to do everything in our power not to go down that road.
GBR: One of the things that has been well noted in the press is that you had to immediately win the support of your lenders in order to restructure your debt. What enabled you to be successful in convincing the large number of lenders that you could restructure the debt and move the company forward?
Miller: I think that one thing you have to do is to make sure that people understand that you are truthful and honest in what you tell them. You are dealing with very smart people when you are dealing with a group of lenders like we had. They have to believe that you really are sincere in what you are trying to do, and that you have a plan that has a chance of working. More importantly, you have to offer them an option, which if it is successful, is better than the restructuring approach in which everybody gets less than what they had coming. So I think what is important is honesty, and then you have to convince people that you really are honest and that you have the ability to do what you say you will. It takes a lot of hard work. You have to go out and communicate what you are trying to do to all the people that are involved and ask for their help.
GBR: Agreed. Communication is critical. Along the same lines, what is communicated to the associates and other employees of the company is incredibly important because generally in such situations morale is extremely low. How were you able to get employee buy-in to the visions that you and your management team were able to set forth?
Miller: One of the things that was fortunate for us is that the old management had been forced out. You have a little grace period when you’re new to really get busy and go out and communicate in a big way about what you are trying to do, and we worked very had to do that. Within that short period of time we had to come up with a plan, talk to our associates about what we were trying to do and why it was important to them and also what it would do for them.
Also, it was very fortunate that at Rite Aid we had a very good communication system. Every store had a satellite. There were one-way, hard wired video conferencing capabilities in every one of the 4,000 stores, so we had a method and a means of communicating almost immediately. The first few weeks I think we had almost daily video conference messages to our associates regarding what we wanted to do, how our plans would help them, and why it was important that they help us. In any turnaround situation in which things are really critical and in which you have lots of different groups to communicate with on a regular basis, that kind of communication is very important.
GBR: Having a management team that you brought with you was also quite important I would imagine. In fact, let me pose the question: How important was it that you brought a trusted management team with you to Rite Aid?
Miller: I certainly wanted to assemble a very good management team, and that was the goal when we brought in four executives from the first day. We didn’t realize quite how important that would be when we first took the assignment. I’ll be truthful with you. If I had been a new CEO assuming the job at Rite Aid by myself, I’m almost sure the company would have been bankrupt before I would have been able to understand the seriousness of the situation. However, because there were four of us who came in together and who hit the ground running, including two financial people, within a week or two we were able to determine that we were in much more trouble than we had thought. We knew that we really needed to get our lenders, our suppliers and many other people on board right away because the company was in real trouble. The knowledge that you can get right away with a trusted team was more critical in this situation than probably in any other situation I could think of.
GBR: Within just a few years, you and your team have managed to turn this “corner.” What prepared you to do this, and what do you see in the near future for Rite Aid?
Miller: We’ve already talked about some of the things. We had to work on the things in the stores such as improve the in-stock position, become competitive in price, make the associates feel good about working there. You know, when you’re in the retail business and you’re out of stock on key items and you don’t have advertised products, the customers begin complaining. That means the associates then don’t have very good jobs. Improving those things was therefore important from day one. But even more important was having a long-term plan about how we were going to grow the business and make Rite Aid a better place to work and also more competitive. We have been able to do that. Fortunately for us, we were in the right retail sector. Pharmacy sales were growing and have continued to grow. Because of that we have had a little bit of wind at our backs on the sales side. That has helped us weather the storm, so to speak, when things have been very tough.
Going forward, Rite Aid is in much better shape today. We’ve reduced our debt by half. We continue to reduce our debt. When our team got there, we had $20 million in cash and were holding about $200 million in checks. Today we have $450 million in cash and everything’s paid up to date, so things are a lot better. Going forward, the chances are very good that Rite Aid will continue to grow and be more successful. This year (2004) we started building new stores again. We think that the picture is very good for us. We are still in the right retail sector. The population in the U.S. is getting older and people need more prescriptions, and that’s really the core of Rite Aid’s business. The future looks very bright.
GBR: Looking back on the situation with Rite Aid, is there a sense of satisfaction that might never have occurred if the situation had not been so dire?
Miller: I guess that’s always the case. It’s always exciting when you’re successful, no matter what you do, but because a lot of people predicted that there was no way that we would survive, in this case being able to accomplish what we have as a team and with the help of the associates really does feel pretty good. Rite Aid is a very viable company that we think will continue to get better and better. And that’s certainly not due just to me. There are many people who helped us to get to that position.
GBR: Thank you very much for talking with us. We greatly appreciate your sharing your insights and experiences with us.
About the Author(s)
John K. Paglia, PhD: As Associate Dean, Dr. Paglia leads the design and delivery of evening and weekend business degree programs for working professionals, as well as oversees student recruitment for these programs and the school-wide marketing, communications, and public relations functions. He founded the award-winning Pepperdine Private Capital Markets Project for which he has been recognized by the Association for Corporate Growth with an “Excellence in M&A Award” in 2011 and the Alliance for Mergers & Acquisitions Advisors and Grant Thornton with a “Thought Leader of the Year Award” in 2012. Paglia is a frequent speaker on the topics of privately-held company cost of capital, valuation, access to capital, and financing and deal trends at valuation and M&A conferences. Dr. Paglia holds a Ph.D. in finance, an MBA, a B.S. in finance, and is a Certified Public Accountant and Chartered Financial Analyst.