With HQ buildings in ‘great distress,’ Rite Aid CEO tells 2,800 employees to work from home
The COVID-19 office closures spurred Heyward Donigan’s thinking to move in this direction — a remote-first corporate staff.
Heyward Donigan heads the regional drugstore chain Rite Aid that competes with bigger rivals like Walgreens and CVS. Supermarkets ate into Rite Aid’s business during the pandemic when consumers limited their shopping to one store to minimize exposure to COVID-19. The Pennsylvania company’s stock has shed nearly 50%, going from $25 a share to about $14 a share, and the ratings firm Fitch warned over the summer of its “weak position in the relatively stable U.S. drug retail business.”
As part of her plan to transform Rite Aid into a “hyperlocal” chain and cut costs, Donigan announced last month that 2,800 employees at the Rite Aid headquarters in the Camp Hill, Pa., area and those who work in operations in other states won’t return to their offices. They’ll stay remote.
Rite Aid’s Camp Hill headquarters also will relocate to Philadelphia’s Navy Yard for employees, executives, the board, merchandisers, and others to meet and collaborate — not to sit and bang away daily on a distant laptop over Zoom.
“I was inclined to never go back to the office, you know, and I was inclined to never have our corporate associates go back to these offices that really weren’t reflective of our brand,” Donigan, the drugstore chain’s CEO, said in a recent interview.
Rite Aid’s survey of employees seemed to agree. Donigan said that 80% of employees said they “never wanted to return to the office,” while 16% said they would go back but didn’t want to do it every day. Only 4% wanted the traditional go-to-the-office daily.
Even before the pandemic, Donigan commuted to Camp Hill from Virginia Beach, Va. Other Rite Aid corporate executives no longer lived in the Camp Hill area, either. The COVID-19 office closures spurred Donigan’s thinking to take another step in this direction — a remote-first corporate staff. Or a corporation largely run by employees working out of their homes.
Peter Cappelli, the director of the Center for Human Resources at the Wharton School at Penn and author of the just-published The Future of the Office: Work from Home, Remote Work and the Hard Choices We All Face, said that researchers don’t really know whether remote work was effective during the pandemic. It was an emergency.
Telecommuting is the next-best comparison. And 20 years of research and observations show that employees who telecommuted don’t get promoted as much, don’t get paid as much, and are less committed to their organizations, Cappelli said. “The bet you’re making is that your real estate savings are going to be worth all that stuff,” he said.
Donigan said that Rite Aid will save millions of dollars as it divests its real estate. The funds will boost the company’s bottom line for shareholders, or they could be reinvested into the company. And, she said, “it’s the best way to recruit for talent.”
Here is a recent question and answer, edited for brevity, with Donigan:
How did you balance a potential cost-savings of a remote-first headquarters staff with the benefits of having those employees work remotely?
We had the corporate headquarters building, which really is very old and in great distress. We also had a very old innovation center that was an old grocery store. We had our technology and accounting offices in an old retail store that had to be gutted. And so it was not a pretty picture. We felt that it was not in our shareholders’ best interest to maintain and manage and invest in all of this real estate. So we will be divesting most of our real estate. So there is a fairly significant savings that will accrue to our bottom line starting next year.
How do you envision the remote-first workspaces for the headquarters and regional collaboration centers?
Most of them are going to be kind of like a WeWork, where people come in maybe one day a week or they gather for team meetings and some collaboration; everyone is still a remote-first workforce.
Much of your leadership team, including yourself, isn’t working in the Camp Hill area now. Did this make the remote-first decision easier?
We’re spread all over the place. And that was true before COVID because I had taken a position that I didn’t feel anyone should have to move to Camp Hill. If I was going to make someone move to Camp Hill, I would not have much of a team. Nothing against Camp Hill. It’s a wonderful place to live.
Bosses like seeing employees. They know they’re working. What do you think about not seeing them?
Well, I do see them on video. It’s mandatory. Your video has to be on. My team’s on video with me all day long, every day.
How did the board react to your plan?
If I had proposed this before COVID, I don’t think the board would have been very happy. [But] they could see how easy the transportation was [at the Navy Yard], how close it was to the airport, and the building is just spectacular, and the Navy Yard is so spectacular. They were blown away.
In addition to the headquarters, Rite Aid plans an ‘innovation center’ in Philadelphia. Where will this be?
It will be likely in the Navy Yard. It requires a very big space because you’re essentially mocking up a store, and you have to have a loading dock so that we bring in all of our merchandising partners.
Did other CEOs say, ‘Wow, what are you doing?’
Many CEOs have quite a lot of real estate, very expensive headquarters. So it could very well make sense why someone would want to bring most people back into the office. We were never in that situation.
Has Rite Aid noticed or even followed remote-first employee productivity? Does Rite Aid track remote-worker productivity?
I worry less about, “Are we getting productivity?” I worry more about, “Are we burning people out?” And so what we’ve done is we’ve established some rules of the road. We don’t have meetings Monday mornings. We don’t have meetings between noon and [1 p.m.] if we can avoid it. We try to shut down in the evenings because now some people are working around the clock.
This many months into the pandemic, what are you seeing now?
Trying to get people to travel again. We have some people that say, “Well, if we’re remote-first, then I never have to travel again,” and we’re, “No, no, we still get together.” So yes, we’re now setting expectations that, yes, we do have to travel and see each other again. You can’t just be at home.
Rite Aid expects no job cuts in Central Pennsylvania. But if an employee leaves from the Camp Hill area, you can hire anywhere in the U.S. to replace them, and that could lead to fewer employees in Central Pennsylvania.
One hundred percent, yeah. We’re not saying there won’t be a shift over time with jobs and the Central Pennsylvania area. But the only reason there would be a shift is that we couldn’t backfill someone in that area.
As employees are hired and work remotely around the U.S., do you intend to tailor staff salaries to where employees live to account for the cost of living? Can they relocate?
We never really had a matrix of salaries by geography. [Employees] can move wherever they want. We’re not going to adjust their salary. If they want to move from New York to California or California to Florida, that’s fine.
Do you offer remote workers stipends for their home offices?
We have not yet. We obviously support them with technology, but we have not offered a stipend, and don’t know whether we will. We’re looking at all of the policies now.
You have said that Rite Aid is hiring. What positions and how do you view the situation with the labor force?
We’re hiring everywhere. We’re hiring technology like crazy, on our digital teams. We’re hiring, of course, pharmacy techs, pharmacists, and front-end store staff. We’re hiring in mail order and distribution centers. Like every company in America, we’re seeing significant turnover. And we’re seeing significant wage pressure. We’re seeing the “great resignation,” as they call it: people are leaving the workforce altogether. Women are leaving the workforce, sadly, and a lot of people are looking for less stressful positions. There’s intense wage pressure, and because the volumes are up so significantly with vaccines, testing, scripts coming back, and new services being provided, you know, we need more staff.