What went wrong at Walgreens?

After more than a century as a fixture on main streets across the country, one of Chicago’s most iconic companies is reaching for a lifeline.

The Wall Street Journal reported that Walgreens Boots Alliance has been in talks to go private, which would mark the end of its nearly century-long history as a publicly traded company. The reported potential buyer is Sycamore Partners, a New York-based private equity firm. A senior adviser to Sycamore, retail veteran John A. Lederer, has served on the drugstore chain’s board since 2015, so New Yorkers probably know what they’re getting into.

Walgreens has been in decline for years.

In its most recent earnings report, the Deerfield-based company admitted it was losing $1 billion a month. Its market value plunged from a high of $100 billion to less than $8 billion before news of the potential Sycamore deal gave the stock a slight boost, including a rise of about 5% on Friday, as of late Financing discussions made the deal seem more likely (if…). hardly certain) to go through.

The company has already said it will close 1,200 underperforming stores and threatens to close hundreds more unless there is an unlikely turnaround. If the mating dance with Sycamore stalls, bankruptcy is possible given the high debt burden.

What happened to this legendary merchant who achieved great success under the leadership of the founding Walgreen family and their descendants? In short, Walgreens has gotten a lot bigger, but not better.

The company operates in a retail sector besieged by tough competitors like Amazon and Walmart. As this site recently reported, profit-hungry pharmacy benefit managers are putting pressure on their core prescription drug business. And customers who prefer to shop online are less likely to visit the brick-and-mortar store to buy the vitamins, cosmetics, snacks and beverages that have historically driven the company’s sales. When customers visit aesthetically dismal stores, the experience is all too often disappointing.

Chicagoans who know Walgreens as a local company with well-known stores throughout the region might be surprised to learn that it has grown into an intercontinental handful.

Walgreens was called Walgreens until 2014, when it changed its name to reflect its purchase of Boots, the UK’s largest and once popular pharmacy chain. This was just one of several costly acquisitions that are likely to be unwound as the company struggles to revive itself.

In fiscal 2023, Walgreens had sales of $140 billion, 13,000 retail pharmacies in nine countries and more than 330,000 employees. This massive size should have given buyers enormous leverage in purchasing prescription drugs and other products, but size did not equate to profit.

Walgreens also made a foray into providing primary care with a major investment in the VillageMD chain. The deal seemed like a good fit, but the company couldn’t make it work.

What a surprise, given the strategy it expressed so clearly in public filings: “The company delivers a connected healthcare experience that can contribute to better outcomes in communities while leading the transition to value-based care where quality is the focus, further accelerated. “Patient care is more important than the quantity of services provided.”

Say something? All this jargon suggests fuzzy thinking at the top.

In fact, Walgreens’ greatest strategic advantage – its central role in providing health care – has not paid off.

Vaccination and testing services made its employees heroes during the COVID-19 pandemic. Prescription medications are increasingly the first choice for many medical conditions, and more patients than ever have insurance coverage to help them pay for their medications. Consumers faced with a complicated healthcare system want the convenient and accessible service that Walgreens aims to provide.

So where are the profits? Private equity firms like Sycamore know how to solve this problem, at least in the short term, and it’s not pretty.

If a Walgreens takeover happens, expect many more store closings and mass layoffs. A smart buyer will likely break up the company and sell off some of the assets. Candidates include company-owned drugstore chains such as Boots, Duane Reade and Mexico-based Benavides. Own brands like Nice! could also be sold.

Privatization would reduce the control Walgreens receives as a publicly traded company. Elected officials who are rightly concerned about the rise of pharmacy “deserts” in disadvantaged communities can complain all they want: private equity owners have a reputation for ignoring political nuances.

And in fact, Walgreens probably needs some shock treatment to get out of the doldrums, or else others will continue to fill the void.

Archrival CVS suffers from many of the same problems as Walgreens, having overexpanded through acquisitions and failing to meet its financial targets. Sadly, nothing would help it more in the short term than if its closest competitor was cut down and burned.

From dollar stores to supermarkets to warehouse-like operations like Costco, other retailers are disrupting the traditional business of local drugstores. And neither Walgreens nor CVS have managed to build an online presence that can compete with their smartest e-commerce competitors.

For Chicago, the prospect of a private equity deal for such a historic homegrown company is daunting. Even if the company’s headquarters officially remained in the area, outside owners would still be in charge.

Walgreens is a major local employer and has made changes to help frontline employees who were experiencing burnout after going above and beyond during the pandemic. For all its business woes, the retailer has been a thoughtful corporate citizen, providing healthcare services every day that can literally be the difference between life and death in the communities where it operates.

We support Walgreens and hope that the outcome of this final Hail Mary is better than the difficult times we face.

Walgreens, heal yourself.

Submit a letter to the editor of 400 words or less here or email [email protected].