Our Perspective on the Walgreens Reset

If you’ve been watching Walgreens over the past few months, you know that the company is making significant changes to its business to help weather a persistent post-covid slump. Like most pharmacies, the retailer thrived during the pandemic, but Walgreens is having a difficult time meeting revenue expectations. Significant restructure is underway that includes a 10% U.S. workforce reduction announced in May, followed by the July disclosure that the retailer will close 450 stores – 150 of which are domestic storefronts.

In addition to cutting stores and staff, Wagreens is experimenting with a new store format, which made its debut earlier this year. A few folks from our team recently visited the newly redesigned Walgreens in the South Loop area of Chicago. The experimental format is widely viewed as an effort to cut down on theft, which is understandable given the recent rise in brazen shoplifting at convenience stores and pharmacies, particularly in urban city centers.

With the exception of a small subset of “essential” products available for purchase via self-check-out kiosks, products have been removed from the store and placed in what can best be described as a back-of-house warehouse. Customers browse products on touch-interactive tablets and, once purchased, employees gather those products and hand them over to the customer.

In addition to loss prevention, the redesign is also an attempt to infuse more technology into the in-store experience. Both are worthwhile endeavors, but the execution is questionable at best. Let’s explore that in a bit more detail.

In fairness, Walgreens has gone on record saying the new store design is more about testing new formats and less about product security. But it’s impossible to believe the new format won’t curb theft – after all, most of the products have been removed entirely from the part of the store that’s accessible to customers. So the new design most certainly will reduce theft.

Now let’s turn our attention to the use of in-store technology. The critical piece here is that we believe in-store tech is most effective when it is additive to the in-store experience. It cannot be used as a direct replacement for what customers experience in the store. In this case, Walgreens effectively created a BOPIS experience that starts and ends in the store. Here’s the real head-scratcher from our perspective: What makes BOPIS such an effective model is that customers can shop at their leisure from the privacy of their homes. Once their order is ready, they’re notified and they can be in and out of the store in just a few minutes when it comes time to pick up their orders. This new Walgreens model misses the mark on both accounts. Customers fill their virtual carts in full view of other customers. Once they complete their purchases, they have to wait around as store employees collect and pack up orders before handing them off to customers. It’s a BOPIS experience, without the convenience elements that make BOPIS great in the first place.

It’s worth noting that the entire retail space is in a constant state of flux, adapting to market conditions as they eb and flow. Today, most brick and mortar stores are experimenting with hybrid variations that preserve certain aspects of the traditional in-store experience, while making way for BOPIS and third-party pick-up. Walgreens’ experimental new format is an example of moving in this direction, but it doesn’t feel very welcoming, and it certainly didn’t strike us as being particularly innovative or interesting. We suspect it’ll take several more iterations of this new concept before Walgreens gets it right.