Not much has gone right for Walgreens. Facing tough headwinds, the brand has been playing catch up to other U.S. pharmacy retailers for years. WSJ’s Joseph Walker on what went wrong for Walgreens and the private equity deal that could sell the company for parts.See The Journal live! Take our survey! Further Reading: - Walgreens Goes From $100 Billion Health Giant to Private-Equity Salvage Project - The Walgreens Billionaire Watching His Empire Come Apart Further Listening: - How Target Got Off Target - What Went Wrong at Bed Bath & Beyond? Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What is the history of Walgreens?
Walgreens, the store with the red squiggly W, has been an American institution for more than a century. It's a place where you can fill your prescriptions, buy deodorant, toothpaste, shampoo, or pick up a pint of ice cream late at night. And it's everywhere. 70% of Americans live within five miles of a Walgreens-owned pharmacy. But this American institution is now at risk of falling apart.
Walgreens, which has been a publicly traded company for close to 100 years, agreed to sell itself to a private equity firm called Sycamore Partners for about $10 billion, or something like $90 billion less than it was worth about 10 years ago.
That's our colleague Joseph Walker. He's watched Walgreens go from a company worth more than $100 billion down to worth $10 billion today.
You know, a great American brand, over 100 years old, you know, really have this sort of ignominious demise or decline over the past, you know, five, 10 years in the way that it struggled to adapt to the market forces that were affecting its competitors, but didn't quite end up moving in the right direction.
And you can add into it, you know, the Italian billionaire who stepped in and tried to help with that turnaround and, you know, so far has also failed to make it happen.
Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh. It's Monday, March 10th. Coming up on the show, the collapse of Walgreens.
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Walgreens was founded in Chicago in 1901. That was the same year that President William McKinley was assassinated and Teddy Roosevelt took over. Roast beef cost 15 cents a pound and a dozen eggs cost less than a quarter. Ford's Model T wasn't even built yet.
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Chapter 2: Why is Walgreens selling to private equity?
Well, it doesn't work well enough to solve their problems at the pharmacy counter.
What went wrong for Piscina and Walgreens is after this break. With Walgreens' pharmacy business struggling, CEO Stefano Pacina identified other areas that he thought could be more profitable. He tried beefing up its retail business with Walgreens-branded merchandise.
And when you go back to like the 2012, 2015 timeframe from when Stefano and Walgreens first linked up, the thing that Stefano would talk about over and over again, right, is look, the back of the store where we dispense the prescriptions, those margins are declining. You know, the American pharmacy business has had real rich margins for a long time, but that's declining.
Now you gotta deal with that. And the way that you deal with it is the way that we dealt with it over in Europe, which was to make the front of the store into a desirable place to go shopping.
But there was a problem with this formula — online shopping.
Aside from many other missteps that the company might have made there, just people were buying less and less inside of the store. People, you know, were much more likely to shop online.
Fecina also tried other things. Walgreens bought thousands of Rite Aid stores. It acquired a couple doctor's office chains. But the deals added more debt and failed to stop the pressure on its cash flow. Meanwhile, Walgreens and its rivals were searching for new solutions for their pharmacy businesses.
where everyone else zigged and Stefano zagged was not pulling off a big deal with an insurer. There was a period of time in the past five, 10 years where it seemed as though every big healthcare company was merging with another big healthcare company. And so the most direct competitor that you could think of perhaps is CVS. So CVS and Aetna combined. Aetna is a health insurer, right? And so
CVS pharmacies, they depend a lot on health insurers for how much they get paid and all that reimbursement. And so by hooking up with an insurer, it just gives it that much more leverage, both internally and externally, on the payments that it receives for dispensing prescriptions.
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