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Fred’s reports slight gain in total sales numbers for September

BY Michael Johnsen

MEMPHIS, Tenn Fred’s Inc. on Tuesday reported that total sales for the five weeks ending Oct. 4 were $161.3 million, up slightly from $161.1 million in Sept. 2007.

Excluding stores closed in 2008, total sales from ongoing stores increased 4 percent in September versus the same month last year. Comparable store sales for the month increased 1.1 percent.

“Increased customer transactions during September demonstrate that our sales initiatives

continue to improve the Fred’s shopping experience for our customers and, in turn, are helping us grow market share,” stated Fred’s chief executive officer Michael Hayes. “As the month came to an end, however, we saw a drop-off in our sales as our customers became more apprehensive about the credit crunch and grew more cash restrained. The sales trends in our pharmacy department also continue to affect our top-line sales—even though pharmacy margins are improving—as we experience comparable script growth that is less than the effect of the branded-to-generic script-mix shift.”

 

Citing that consumer angst over cash flow, Fred’s lowered its outlook for third quarter earnings to a range of $0.14 to $0.16 in earnings per diluted share, as more and more customers are expected to gravitate toward lower-margin departments, the company stated.

Fred’s did not open any stores or pharmacies in September. During the first eight months of the current fiscal year, Fred’s has opened 17 new stores and four new pharmacies.

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Digital-download technology could be next wave for DVD kiosks

BY Mike Duff

How consumers receive entertainment is changing so rapidly that it’s difficult to predict just where the market will be in a few years. However, drug chains that partner with technologically adept service providers could remain players as the business shifts from the DVD-dominated model employed today.

Change in the business can be illustrated by developments at once dominant content provider Blockbuster.

In July, Blockbuster announced that it was adding in-store digital downloads, testing kiosks that perform the function in a handful of stores. Blockbuster chief executive officer James Keyes said earlier this year that download kiosks are part of the retailer’s strategy to establish itself as the “preferred source for digital media entertainment” by providing a convenient service for customers. Keyes predicted that the entertainment business would be predominantly digital in 10 years, despite the fact that consumers haven’t yet embraced downloads.

Released last month, NPD’s “Entertainment Trends in America” study reported that 67 percent of respondents had viewed an owned DVD within the past three months, while half had viewed a rented DVD. Video on demand also got its due, with 18 percent using the media, while 8 percent of respondents reported viewing movies on portable media devices, 6 percent downloaded a movie from a free file-sharing service and just 2 percent paid for a digital video download from the Web.

On the other hand, 52 percent of respondents reported visiting such sites as YouTube to watch streaming video.

Russ Crupnick, NPD’s senior industry analyst for entertainment, said that while the rapid evolution of demand makes predictions difficult, he saw advantages in downloads and on demand as big box retailers, who helped drive DVD sales, re-evaluate the category as its sales slow. Big box retailers drove the development of the DVD business, which a decade ago was high-margin and fast-growing. Now, NPD research pointed to flattening growth, Crupnick said, “so they have to wonder, is it time to devote less valuable floor space to DVD and more to Guitar Hero?”

With less support from the big boxes and shifting priorities at Blockbuster, innovators have an opportunity to grab the attention of consumers.

“There are companies out there, Redbox is a great example, that say, ‘While the traditional rental market is slowing down a little, why don’t we make getting a DVD ubiquitous.’ We’re seeing a shift to making [DVD] a product consumers can get anytime, anywhere,” Crupnick said.

That convenience can have several effects. For one, it makes getting a movie less about a destination, which will change the way consumers think about purchasing. It also promotes new shopping patterns. While it’s convenient to take advantage of such a service as Redbox while picking up a gallon of milk, the opposite also is true.

A kiosk partner provides valuable technological expertise that can be applied as new formats gain adherents. It can adapt its distribution network to new customer preference for digital downloads to DVD or directly to devices.

Satisfying diverse customer preferences is only going to become more important as the character of purchasing changes. “I like the democratic point of view,” Crupnick said. “I think the way consumers acquire, pay, watch and interact with devices is in any way consumers think appropriate. If I have a 50-inch TV with a Blue-Ray player, I can buy or rent, but, as all TV becomes connected, I may turn to video on demand to get something suitable. If it’s just a case of ‘Gee, I just missed last weeks episode of Army Wives.’ Maybe I’ll just watch it on my device on the subway.”

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Ranbaxy vows to correct FDA violations

BY Alaric DeArment

NEW YORK —Ranbaxy Laboratories hit a speed bump when the Food and Drug Administration announced that it would ban the import of drugs made at two of its plants in India, into the United States.

The FDA issued two warning letters to the Gurgaon, India-based generic drug maker and an import alert for generic drugs produced at the two plants on Sept. 16, citing deviations from U.S. current good manufacturing practice requirements and deficiencies in the company’s drug-manufacturing process. By Sept. 18, the list of products affected by the import alert had grown to 33 drugs and six active pharmaceutical ingredients, and U.S.-based competitor Mylan’s stock rose when analysts said Ranbaxy’s problems would cause it to take some of the Gurgaon, India-based generic drug maker’s market share.

Ranbaxy has accepted the FDA’s warnings and said it will work to fix the problems.

“We are looking at how we can work with the FDA to satisfactorily correct the shortcomings,” said Venkat Krishnan, vice president of Ranbaxy USA and regional director for North America. “We will continue our efforts to work with the FDA to answer their questions and resolve the issues as quickly as possible.”

The specific problems at the two plants, which the FDA documented early this year, included inadequate measures to prevent pharmaceutical cross contamination and inadequate batch production and control records at the Dewas plant, and inaccurate written records of the cleaning and use of major equipment at the Paonta Sahib plant, where the FDA also cited cGMP violations in 2006.

Still, the FDA did not find any problems with drugs manufactured at the plants and recommended that patients continue taking them. It also did not find similar problems at Ranbaxy’s other plants and said they did meet cGMP requirements.

“We’re just a little concerned that they took the pathway to put us on an embargo, which we don’t think is the solution to the problem,” said Jim Meehan, vice president of sales, marketing and distribution. “There’s nothing wrong with our products—the FDA has said that.”

The company has hired pharmaceutical consultancy PAREXEL International to address the problems at the two plants and retained the legal services of former New York mayor Rudy Giuliani to resolve the issues with the FDA.

For the time being, Krishnan said, restoring confidence in Ranbaxy’s products in the United States will require getting the embargo lifted.

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