Walgreens has billions invested in brick and mortar, and for at least a decade its sprawling network of stores helped the company dominate the market and put smaller chains out of business. But the drugstore chain needs to revamp its strategy before it is beat out by online retailers, according to Crain's Chicago Business.
In the last few years, more patients have been receiving prescriptions by mail, making the trip to the drugstore much less convenient. That trend has placed significant pressure on Walgreens' profit margin.
In the first quarter of fiscal year 2020, Walgreens profit margin shrank to just under 3 percent, from just above 4 percent in the same period a year earlier, according to Crain's. Walgreens stock has fallen 26 percent over a one-year period.
Yet Walgreens CEO Stefano Pessina continues to pursue strategies centered on brick and mortar, according to the report.
A few years ago, Walgreens paid $4.4 billion to acquire 1,932 former Rite Aid pharmacies, bringing the company's total to more than 9,000 physical locations.
During a recent investment conference, Walgreens CFO James Kehoe was asked how Walgreens would compete against Amazon. His answer was "so we think the physical locations are fundamental," according to the report.
Without changing course, Walgreens may experience the same fate as other retailers that clung too long to brick-and-mortar strategies, according to Crain's.
With its vast experience in pharmacy, Walgreens can compete with rivals CVS Health and the emerging threat of Amazon Pharmacy if it begins to transition to offering consumers a digital experience, according to the report.
Launching an online pharmacy for prescription refills and partnering with Microsoft to offer telehealth are a couple of steps in the right direction, Crain's said, but more will need to be done to keep up with the competition.