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Duane Reade drugstore in New York City.Chris Hondros/Getty Images

A few years ago, iconic New York drugstore chain Duane Reade was choking under flagging sales, cluttered stores and a mountain of debt. That was before former Loblaw boss John Lederer was asked to bring his Canadian tool kit to Manhattan.

In less than two years, Mr. Lederer and his team garnered so much attention for their transformation of the troubled chain that it was snapped up by behemoth Walgreen Co. for almost $1.1-billion (U.S.) in April. Now, Walgreen, the top U.S. drugstore retailer, is starting to roll out Loblaw-inspired changes at its own 8,000-plus stores.

The makeover is all the more noteworthy because it is taking place in one of the toughest retail environments in the world - New York - a market that's fiercely competitive.

Mr. Lederer's strategy - to revive Duane Reade with a new logo, revamped and renovated stores, trendy new products - including perfume bars, organic snack foods, even soda imported from France - has shown early signs of a turnaround.

"Duane Reade was an impaired asset," said Neil Stern, senior partner at retail consultancy McMillan Doolittle LLP in Chicago. "They were the stores New Yorkers loved to hate … Clearly it was Canadian inspiration that was brought in to Duane Reade. It's definitely a work in progress. But the initial results from the stores suggest that it was working."

"We made good progress in transforming the business," Mr. Lederer told analysts before he moved on last month to head another U.S. company. "Our renovated stores have shown a significant lift in sales … All of this has created momentum."

The momentum is reflected in Duane Reade's numbers. By early this year, sales in the 30 renovated stores had jumped an average of 15 per cent from a year earlier, according to Mr. Lederer. Another 30 outlets were slated for renovation in 2010, with the total chain of almost 260 to be revamped within five years.

The initiatives include a line of premium DR Delish foods, such as Broadway chocolate chip cookies, that emulate President's Choice private-label offerings of Loblaw Cos. Ltd. Other Canadian-inspired projects: fresh prepared foods; a chatty flyer/newsletter, much like Loblaw's Insider Report; colour-coded, wide-aisled store sections; upscale beauty aisles and loyalty reward promotions.

"They've done a heck of a job in New York City with that private brand," Greg Wasson, chief executive officer of Deerfield, Ill.-based Walgreen, said in March of the Duane Reade makeover. "The opportunity to potentially accelerate our private brand strategy with their knowledge and expertise is certainly a strong possibility."

The initiatives illustrate how Canadian corporate know-how can serve as a model beyond domestic borders, a role reversal of the more common practice of home-grown companies borrowing a leaf from their foreign counterparts' playbook.

Named after the location of its first outlet in 1960 - between Duane and Reade Streets on Broadway - Duane Reade stores were plagued with weak results, messy stores and snarling staff, when its private equity owner hired Mr. Lederer in 2008 to breathe new life into it. "Without bold and immediate action, we're history," his Duane Reade marketing lieutenant, Joe Jackman - another former Loblaw executive - had warned.

Now, another Loblaw alumnus, Joe Magnacca - who was also a senior executive at Toronto-based Shoppers Drug Mart Corp. - is steering the Duane Reade makeover after having been part of the turnaround team.

Private labels are a priority for the ex-Loblaw team because, as Mr. Magnacca has said, they can ring in 15 per cent more profit than national brands because of reduced costs tied to producing and pitching the products.

Tom Stephens, a private-label consultant and former Loblaw executive, said the new team at Duane Reade tapped into their supplier contacts to persuade vendors to develop products similar to the ones at Loblaw. The items came to market as fast as six to 18 months from conception, generally half the time it would normally have taken, said Mr. Stephens of Brand Strategy Consultants.

"When a [former]Loblaw person calls a supplier that they've had a relationship with for 10 or 15 years and says, 'I'm now at Duane Reade. I want similar products for Duane Reade,' then the response is much quicker."

Among the hundreds of new private-label products are gluten-free and calorie-reduced fare. The chain has rolled out some smaller package sizes, catering to an urban customer in a small living space. The initiatives are beginning to pay off: In the fourth quarter of last year, private-label sales had reached 11.5 per cent of the total business, up almost two percentage points from a year earlier, analysts were told in March.

The new team also reinvented Duane Reade's beauty aisles, adding upscale products that yield healthy margins and borrowing heavily from Shoppers' cosmetics workbook. Walgreen is now considering emulating the department-store-like strategy for its own beauty areas. "It is in line with where we believe we can take the beauty experience in our own stores over time," Mr. Wasson at Walgreen said.

Walgreen is racing to overhaul its own stores, but some of Duane Reade's changes may not translate to Walgreen's suburban locations, Mr. Stern said. Walgreen customers, for instance, may not be looking for ready-to-eat oatmeal, sushi or salads.

Eventually, Walgreen could drop the Duane Reade name and put its own banner on the chain, letting a piece of New York history fade away, he said. But the Canadian influence in the Duane Reade store aisles will persist. "They Canadianized a U.S. drug store chain."

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EXPORTING CANADIAN STRATEGY

Team Loblaw at Duane Reade

1. John Lederer. CEO of Duane Reade between April, 2008, and September, 2010, led the turnaround efforts, borrowing a page from his Loblaw workbook. Previously, he was at Loblaw for 30 years, including the last six as its president. Today he heads a U.S.-based food services company.

2. Joe Magnacca. President of Duane Reade since September, previously part of its senior management turnaround team. He formerly was a senior executive at Shoppers Drug Mart, overseeing its merchandising and marketing, including store brands. Before that he was at Loblaw.

3. Joe Jackman. Acting chief marketing officer at Duane Reade until the end of August and a former marketing executive at Loblaw and, before that, a consultant to Loblaw. Currently he's strategic advisor to Walgreen Co. and CEO of consultancy Joe Jackman Brand Inc.

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