The same company duped by Theranos a decade ago is dying a painful death today. Who's surprised?
Once a colossus and a staple of American consumerism, Walgreens is going private after a decade of decline, underperformance, and mismanagement - ending a 100-year run on the public markets.
A decade ago, Walgreens was at the peak of its empire. But as we know, empires deteriorate over time. Rising retail competition from Amazon and ecommerce quickened the haste of the collapse, while trying to pivot and go all-in on healthcare ultimately became a death knell - a supernova-turned-black hole. The failed business transformation will be a case study for MBAs everywhere for years to come. Today, the once-colossal drugstore chain is limping off the public markets, taken private in a $10 billion sale after years of mismanagement, misguided bets on healthcare, bad acquisitions, and a stubborn refusal to adapt to new consumer habits.
To understand Walgreens' downfall, rewind about ten years: The company was on top of the world, fresh off a high-stakes merger with European behemoth Alliance Boots. Leadership promised "global synergy," an expanded footprint, and unstoppable growth. What investors got instead was a sluggish, debt-heavy juggernaut increasingly outflanked by Amazon and e-commerce.
Even more embarrassing? Walgreens had tangled itself with Theranos—a relationship that ultimately blew up when the "innovative" blood-testing startup turned out to be a house of cards. Though that fiasco was a footnote in a broader collapse, it painted Walgreens as shockingly easy to hoodwink, raising questions about how deeply (or not) its leadership vetted strategic partnerships.
The Healthcare Transformation Catastrophe
In a frantic attempt to stay relevant amid secular decline of its core business - turning retail pharmacy foot traffic into sales on overpriced supplements and beverages, Walgreens plunged straight into the deep end - healthcare services. But not just good ole fee for service (CityMD urgent cares). Value-based care too. So cue the acquisition spree: VillageMD, Summit Health, CityMD, and a smattering of urgent-care or value-based care initiatives, spending billions of dollars in the process to pitch the vision of a coordinated care delivery strategy across the home, pharmacy and VillageMD footprint. The strategy boiled down to: "Build it, and patients will come. Someday."
Yet Walgreens never secured the vertical integration critical to making that plan profitable (unlike CVS, which brought in Aetna and Caremark).
Instead, Walgreens tried to be the "independent partner" that every payor could work with, meaning it ended up with a Frankenstein-esque assemblage of assets. A network of half-baked primary-care clinics and no cohesive plan to tie everything together. And when value-based care got slammed by risk-adjustment changes, any remaining illusions of a grand Walgreens healthcare empire vanished.
Meanwhile, the other half of Walgreens' business - a glorified convenience store built around impulse purchases - was under siege. Consumers who once popped in to grab supplements, energy drinks, and toiletries shifted to Amazon Prime orders and mail-order pharmacy. The hole in Walgreens' foot traffic ballooned further with the rise of big-box stores offering cheaper and more convenient options.
On top of that, a rash of retail theft and the decision to lock up merchandise - from deodorant to beer - pushed any lingering loyalists away. Unless you love wandering endless aisles in search of an employee to unlock a glass case (which, side note, is an introvert's worst nightmare to ask for a cabinet to be unlocked by a nonexistent employee at Walgreens), it's easier (and infinitely less awkward) to just click "add to cart" online.
A Debt-Saddled, CEO-Churning Ship
By 2022, Walgreens was drowning under layers of self-inflicted burdens:
- Crushing debt (not helped by the Alliance Boots merger and subsequent expansions)
- Frequent CEO turnover: instability at the top rarely bodes well for a smooth turnaround
- Nightmarish in-store experience: overworked pharmacists, few visible employees, no self-checkout, and an increasingly threadbare selection of items
There was also the matter of the opioid crisis, where Walgreens, like other major pharmacies, faced hefty settlements over allegations it helped fuel the epidemic by failing to police suspicious prescriptions. While not a singular cause of the company's decline, the ongoing legal drama added yet another financial and reputational hit.
In hindsight, the purchase of half of Rite Aid's stores was the crown jewel of poor decision-making. Snagging locations out of another retailer's bankruptcy never spelled "market dominance" especially as Amazon was decimating brick-and-mortar retail left, right, and center. The move only weighed the company down with more failing storefronts and additional operational headaches.
The Final Slide into Private Ownership
After seeing its value drop 93% (from $106 billion a decade ago to just $7.1 billion late last year), Walgreens finally found a buyer: Sycamore Partners. A $10 billion equity value and $24B EV is a far cry from where Walgreens once stood. The private equity firm, famous for snapping up retailers on the ropes (great alliteration, eh?), offered $11.45 a share plus $3.00 in potential future payouts tied to unloading Village Medical, Summit Health, and CityMD. Tough to hear that even the investors don't want the crushing healthcare asset load.
Retail Health Is (Temporarily) Dead
Walgreens was the final holdout of a slew of poor decision-making around healthcare business model transformation in primary care and retail pharmacy. Now in the retail pharmacy space, CVS is busy closing stores, Rite Aid already went through Chapter 11 and emerged as a shadow of its former self, and "value-based care" has become a far thornier proposition than once imagined for those whose core competencies lie far away from delivering actually good, meaningful care to patients.
Still, there's a silver lining - for the pharmacist.
As stores close and pharmacists phase out of drug store models over time, the role of the pharmacist will evolve. Pharmacists will - and are - growing into a more comprehensive, key piece in engaging patient populations. You should expect to see them absorbed into primary care / care delivery as an extension of the practice, delivering a more integrated patient experience and resulting in better job satisfaction. Hopefully.
For the drugstore retailers, amid consistent store closures:
- Walgreens, at least for now, is pivoting to a 'retail pharmacy-led operating model' where sales are bolstered by specialty drug spend growth;
- CVS is opening pharmacy-centric stores with smaller, capital-light footprints, focused on health and medicine adjacent products. Probably items less likely to be stolen as well.
So Long, Giant Red 'W'
And so ends Walgreens' 100-year odyssey on the public markets. The chain that once seemed unshakeable has learned, very publicly, that empire-building doesn't always translate into real-world resilience. And for anyone who thinks throwing money at every trend is a formula for success, Walgreens is now a $10 billion, glass-half-empty cautionary tale.
Final Translation: The 3-foot-long receipts may stick around, but the era of the mega-retailer drugstore is fading into history. For the rest of us? There's always Amazon… or maybe we'll just have to wait for someone to unlock the mouthwash.
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