People complain about the high price of education, but university degrees are a bargain compared with what Walgreens Boots Alliance invested on a five-year tutorial in e-commerce.
Graduation comes at the end of September, when Walgreens plans to shut down Drugstore.com and Beauty.com and record a $115 million pretax charge.
The Deerfield-based retail pharmacy giant acquired the sites as part of a $429 million deal just five years ago but now seeks “greater focus on the development of Walgreens.com,” presumably applying what it has learned along the way.
“These digital properties helped us create new digital capabilities with a stronger digital commerce approach,” Walgreens spokesman Michael Polzin said Monday by email.
But the broader lesson for Walgreens — a somewhat different, far larger and more international company today than it was in 2011, as a result of its merger with Europe’s Alliance Boots — has been that its digital competition isn’t so much the websites of other pharmacy chains, such as CVS.
It’s vying with Amazon.com for retail business and sites such as OptumRX.com on prescription drugs. So the stronger it can make Walgreens.com the better.
“It seems like it comes down to broadening the business model,” said Paul Schrimpf, a Chicago-based associate partner at Prophet, a brand and marketing consultancy.
“At the end of the day, it’s about getting new customers, increasing the frequency of transactions and increasing transaction sizes,” Schrimpf said. “When I see the retirement of these two domain names, I see a play (for Walgreens.com) in all those spaces.”
Another factor in focusing Walgreens’ online presence on Walgreens.com was that Walgreens Boots Alliance is in the process of trying to cut $1.5 billion in annual costs over the next year or so. While it hasn’t said what it will save by not operating flanker sites, every bit counts.
It cannot be lost on Walgreens that its in-store experience is better for consumers than its online experience. The more skillfully it leverages the two against each other, the more successful it looks to be. And the more focused it is, presumably, the greater its chance to do so.
Target went through a similar stutter-step, picking up the sites Chefs Catalog and Cooking.com in 2013 and announcing its plan to shut them down late last year.
Walmart.com and brick-and-mortar Wal-Mart stores, Schrimpf said, “have been slowly integrating over the last five-plus years, but for the longest time (they had) separate business models, separate distribution networks, etc.
“Now we’re seeing pickup in store, and they’re making sure the physical experience matches the digital experience, and there’s equity to (be) shared across those spaces,” he said. “It’s a 21st century way of handling (multiple) channels.”
Drugstore.com once was a dot-com darling, going public in 1999 at $65 a share and shooting up even higher. But its share price was just $1.79 the day before then-Walgreens CEO Greg Wasson’s offer of $3.80 per share was announced.
The 2011 deal included not only Drugstore.com and Beauty.com but SkinStore.com and VisionDirect.com.
They had racked up more than $456 million in sales the year before, according to Internet Retailer, which had it ranked the nation’s eighth-largest pure-play e-tailer in 2010 and 46th overall, while Walgreens was 73rd. (Today’s Walgreens reportedly is No. 37.)
Wasson said, at the time, the deal to complement its existing website “significantly accelerates our online strategy.” But the Drugstore.com portfolio had never turned a profit, and some questioned the wisdom of the purchase.
Although at least one analyst called the acquisition “brilliant,” another told the Tribune it “seems value-destroying to me.”
But in the scheme of things, it wasn’t a high-risk roll of the dice for Walgreens, which had a $36 billion market cap and $67 billion in annual sales at the time.
It’s even less significant to Walgreens now, with a market cap of more than $85 billion and its U.S. retail pharmacy sales for the fiscal year ending last Aug. 31 not quite $81 billion.
Internet Retailer, meanwhile, said the company did only $1.3 billion in online sales, which has to be a nagging concern.
“Over the past year, we have been focusing on building new omni-channel capabilities on Walgreens.com,” Walgreens’ Polzin said. “Expanding on these efforts is an important part of our strategy.”
As a prelude to this latest move, Walgreens unloaded SkinStore.com for an undisclosed amount to the United Kingdom-based Hut Group in May. But, until further notice, it will continue to operate VisionDirect.com as a separate entity.
“At the end of the day, you’re still placing bets,” Schrimpf said. “This is a bet by Walgreens, like it was for Target and any other business.”
Read more at the original source: Bye, Drugstore.com. What price, Beauty.com? Walgreens pays for dot-com lesson
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