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February 3, 2025
What Can Bring Walgreens Back to Health?
In the latest round of negative news for drugstores, Walgreens Boots Alliance announced it’s suspending its practice of paying dividends to stockholders for the first time in 92 years amid financial struggles.
Walgreens has been undergoing layoffs, cutting costs, and recently ramping up store-closing efforts as it has struggled for years in the face of persistently low drug reimbursement rates, rising costs, in-store theft, and inflation-sensitive shoppers.
Walgreens said in a news release last week that the dividend cut was aimed at improving finances “as management continues to evaluate and refine its capital allocation policy consistent with the company’s broader long-term turnaround efforts.”
Under previous CEOs, Walgreens aimed to become more of a healthcare destination, including by investing billions of dollars into primary care provider VillageMD, with plans to put Village Medical clinics in 1,000 of its stores by 2027. Now, under recently hired CEO Tim Wentworth, Walgreens has reversed course and is considering selling all or part of its VillageMD business with a goal of refocusing as a “retail pharmacy-led company.”
Under Wentworth, Walgreens also launched a $1 billion cost-cutting program and last May slashed prices on 1,300 items to better serve customers increasingly under “financial strain.”
In an interview last June with CNBC, Wentworth said that amid inflationary pressures, “the consumer is absolutely stunned by the absolute prices of things, and the fact that some of them may not be inflating doesn’t actually change their resistance to the current pricing. So we’ve had to get really keen, particularly in discretionary things.”
Earning the most media attention is drugstores increasingly locking up merchandise to prevent theft.
On an earnings call in January, Wentworth admitted that when items are locked up, “you don’t sell as many of them,” but he also claimed they’re necessary to avoid the profit drain from items being stolen. Walgreens is looking at “creative things” beyond locks to stop theft, but he didn’t “have anything magnificent to share” yet.
Walgreens’ larger rival, CVS, has also been closing stores and undergoing layoffs over the past two years and recently appointed David Joyner, formerly EVP of CVS Health, as president and CEO. Rite Aid emerged from bankruptcy proceedings in September 2024 with a smaller store base.
A CNBC article notes that beyond eroding pharmacy profit margins due to lower prescription drug reimbursement rates, profitability at the front of the drugstores on items such as snacks, makeup, greeting cards, and cleaning products have been hurt by competition from Amazon, Walmart, Costco, and grocery and dollar stores.
Stores are also seen as chronically understaffed, leading to long lines to pick up prescriptions as well as at the traditional checkout. A shortage of pharmacists and burnout for those working in pharmacies are also an issue.
CVS and Walgreens “probably do have too many stores because they overexpanded, but the bigger problem is that the stores that they have are not very good,” Neil Saunders, managing director at GlobalData Retail and a RetailWire BrainTrust panelist, told NPR in October 2024.
Brian Tanquilut, an analyst at Jefferies, recently told the Los Angeles Times, “Between the pressure on the front of the store plus the pressure on the pharmacy, it’s just getting harder and harder for these guys to operate.”
Discussion Questions
Are many of Walgreens’ struggles self-inflected or do they largely reflect the changing dynamics of the overall drugstore model?
What opportunities do you see for Walgreens as well as drugstores overall to reinvent their operations?
Poll
Loading …BrainTrust
Georganne Bender
Principal, KIZER & BENDER Speaking
Melissa Minkow
Director, Retail Strategy, CI&T
Anil Patel
Founder & CEO, HotWax Commerce
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Walgreens is in a heck of a mess with multiple problems on a number of fronts. Its healthcare ambitions are failing.Its core retail business is losing share and custom. And its pharmacy business has significant margin pressure. The whole chain needs to press the reset button. This is partly being done through the closure of badly performing stores, but this is dealing with the symptoms, not the cause of the disease. To survive, the chain needs to create better stores that have a real purpose in communities and provide a superior retail experience that offers convenience and inspiration. It should learn from Boots, which it owns and which has been performing incredibly well in the UK with a dual focus on great value for money at one end and fantastic beauty and wellness innovation (including own-brand) at the other. All of this, however, is a very tall order and I am not entirely sure Walgreens has the stomach for the fight.
Neil, what is their core business? I am not sure they know. Would they rather sell chips than meds?
It’s a great question and I am not sure they have a clear answer. They’ve chopped and changed too much over the past 10 years and they’ve lost focus as a result! Compare to Boots in the UK which has a very clear reason for existence…
Some of Walgreens’ competitors have already addressed these issues (like using an app to open locked cases). If Walgreen’s can’t keep up here, and if it hasn’t cracked the new healthcare ecosystem, it won’t be able to keep up. Walmart is poised to deliver medications in 30 minutes; this kind of innovation is table stakes now.
We can’t forget Walgreens disastrous partnership with Theranos either.
Walgreens stores haven’t changed much over the years. The sales floors are a sea of gondolas. The cosmetics area should be a standout and it’s not. Customers waiting for prescriptions should be surrounded with impulse items. I feel like there are too many missed opportunities on the sales floor. It’s time to shake things up.
Cutting prices and revamping the stores are crucial levers to pull. Walgreens used to be a destination you wanted to visit. Now, the environment is not aspirational.
Is there actually a drugstore chain that’s doing well? RiteAid? (Ahaaaaaa!) CVS (does “not as badly” count?) There are, of course, still a number of smaller/regional chains, but that qualification may make comparisons not very relevant. My own personal experience – which admittedly is selective – is that Walgreens has a lot of oversized stores in marginal areas, which (1) meshes with the claim that they’re particulary suceptible to competition (for the simple reason that they’re really a discounter more than a “drugstore”), and (2) means they’re probably at the high end for shrinkage. The last problem will likely be solved by stepping up closures, which is unfortunate: as I voiced many a time, they’re frequently an anchor in veritable retail deserts which will be more poorly served by dollar stores…or no stores at all.
First, my disclaimer. I’m not a stock analyst, nor an insider, and I don’t pretend to represent the opinions of any person, brand, company, or vendor. My comments below are opinions of my own and should not be misread as factual information.
My experience working with CPG brands and brokers has made me aware of the difficulties some vendors face when doing business with chain pharmacies, including Walgreens.
It is my view that Walgreens has reached a point where it is too dependent on fees charged to vendors, rather than sales of merchandise to consumers.
Walgreens has already reduced its store count. Despite having fewer stores, Walgreens, in my view, is too big for right now. It is important for Walgreens not only to target the unprofitable stores, but also the stores that are barely profitable. Despite its smaller footprint, Walgreens needs to focus on a much leaner operating model.
Smaller stores would take up less space and be more economical to operate with fewer employees for Walgreens. Many stores are freestanding buildings, so it’s not easy, but innovative solutions are possible. Different topic, different day.
In some markets on some days, consumers pull up to a Walgreens in the middle of the day and find a sign on the door saying the store is closed. My understanding is lack of employees might be the reason.
The drive-up windows are sometimes closed because no pharmacist is on duty. I have spoken to doctors that struggle with Walgreens response times.
In order to compete with Amazon, which delivers prescriptions, Walgreens must focus more on efficiency.
Better service all the way around. I left Walgreens because I got tired of waiting for everything! They’ve spread themselves too thin and are doing nothing well
Cutting costs, although a necessary short-term initiative, is not going to increase sales. See the problem? The company appears to need more creative management and needs to go back some more traditional initiatives, such as hiring better and training its employees better, and keeping it associates around longer. Walking into my local Walgreens is hoping that someone who is working in the store cares that I am there and wants to make my experience a pleasant one. Walgreens has had a prescription drug reorder program call “Save a Trip” by which a system aligns your prescription refills so that the customer need only pick up scripts once or twice per month. It doesn’t work.
I think Walgreens’ problems are mostly self-inflicted. They overexpanded, underinvested in the customer experience, and are now scrambling to fix what’s broken. Locking up products will only hurts sales, and slashing prices without fixing store conditions won’t win back frustrated shoppers.
See, the drugstore model isn’t dead, but Walgreens needs to rethink it. If they want to be a “retail pharmacy-led company,” they need to actually make retail and pharmacy work better together. The focus should be on faster prescription pickups, better staffing, and digital integration.
Customers have options, and right now, Amazon, Walmart, and even dollar stores are doing a better job. Unless Walgreens truly reinvents itself, no cost-cutting or store closures will turn things around.
Walgreens needs to better execute its omnichannel business, improve its front-end value offering and invest in its store level employees. How many people use its delivery or know that most of its stores offer same day delivery? With nearly 80% of the population within five miles of one of its stores, it has a tremendous advantage…just like Walmart, which has done a great job improving its competitive positioning against Amazon. They don’t need to reinvest in the significantly in the store format, or even try to copy Boots formula with expanded beauty (that hasn’t worked in the US, too much competition here already with Sephora, Ulta…)
Sell VillageMD and Boots, deleverage and reinvest in the U.S. business.
Like many other retailers, Walgreens is facing tough challenges when it comes to theft, but locking up products isn’t the solution. No one wants to wait in long lines or track down an associate just to grab everyday essentials. The key is finding the right solutions that balance security and accessibility – because when shopping becomes a hassle, people will go elsewhere.
This entire category is in danger of becoming the next department store segment. Prescriptions by mail, and WalMart hitting the back of the store, an almost complete lack of compelling merchandise in the front of the store and you have a recipe for store closings.
This is not a Walgreens issue, it is a segment issue. And it does not help that inner city crime is causing the shopping experience to drop like an anchor. “Help needed in aisle 2 please unlock the razors” spells disaster on top of the other issues.
Walgreens has become a retailers that you only go to get your prescriptions and even that has become a challenge. Their text letting your know your prescriptions are ready has been not working properly for months and the pharmacists are frustrated. I believe a lot of their challenges are self imposed. They are locking up most of their products and you cannot find someone to unlock them. Typically, it take over 10 minutes for someone to come and help you. They need to think like their customers otherwise, they will lose out to others.