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Rite Aid, the nation's third largest drug store chain, filed for Chapter 11 bankruptcy protection yesterday.

The New York Times writes that the company is "weighed down by billions of dollars in debt, declining sales and more than a thousand federal, state and local lawsuits claiming it filled thousands of illegal prescriptions for painkillers.

Rite Aid has "raised $3.45 billion to fund its operations while it is in bankruptcy, during which it expects to continue to operate its stores and serve its customers," the Times writes, though a number of stores are expected tio be closed.  "The company also appointed a new chief executive, Jeffrey Stein, to lead its restructuring. Mr. Stein is the founder of Stein Advisors, a financial advisory firm that focuses on fixing troubled companies. Elizabeth Burr had been serving as Rite Aid’s temporary chief executive since January."

The Wall Street Journal writes that "the Philadelphia-based chain joins a long list of once-familiar retailers that have filed for bankruptcy protection in recent years. Some, such as JCPenney, continue to operate hundreds of stores. Others, such as Toys ‘R’ Us, have disappeared from America’s streets. Rite Aid’s main drugstore rivals have been closing hundreds of locations as they too struggle with staffing and slimmer retail profits, and refocus on medical services.

"Rite Aid has closed more than 200 stores over the past two years. In connection with the bankruptcy filing it rejected 168 leases. The company hasn’t determined how many more stores will be closed, the spokeswoman said."

KC's View:

The Rite Aid stores I've been in over the years have suffered from an overwhelming sense of mediocrity - there is absolutely nothing special about them, no sense that they are building on some sort of unique insight into customers' health care needs.  Where they are successful, I suspect, it probably is because of a lack of great competition.  (Are there any markets where Rite Aid is able to succeed when competing directly with a CVS or a Walgreens?  And those are not chains that I would ever describe as great - just bigger and marginally less mediocre than Rite Aid.)

The overwhelming temptation at the moment is to cut, cut, cut.  But more than ever, because there is so much competition out there, it is important to remember that you can't cut your way to growth and prosperity.  Sure, surgical cutting will be necessary, but the moment also demands a focus on innovation.

Which means that top management needs to answer that question:  What is our unique and differentiating insight into customers' health care needs?

If they cannot answer that question and then deliver on that proposition, then they ought to just fold the whole thing.  Because I can't imagine how Rite Aid will avoid a continuing cycle of cuts and bankruptcies that will have it ineluctably circling the drain.