Walgreen Co. will shutter about 200 U.S. stores as part of an expanded cost reduction push, but the nation’s largest drugstore chain has no plans to shrink in the wake of its combination with European health and beauty retailer Alliance Boots.
The Deerfield, Ill., company expects to open roughly the same number of stores and will consider more mergers and acquisitions, even as it continues to digest a nearly $16 billion deal that finalized its combination with Alliance Boots, which runs the United Kingdom’s largest pharmacy chain.
The store closings that Walgreen announced Thursday amount to only about 2 percent of the 8,232 drugstores the company runs in the United States, Puerto Rico and the U.S. Virgin Islands. The company, which has 19 stores in Hawaii, has not finalized the list of stores it will close, but Walgreen Co. President Alex Gourlay told analysts it was looking at locations where the population seemed to be moving away.
"This really is just getting the right stores in the right places," he said.
Nevertheless, the closings are the latest example of a strategy shift for a company that was opening about 500 stores a year a decade ago. Walgreen once estimated that it was opening a new store every 17 hours on average.
Major drugstore chains once focused mainly on growing by adding locations. Now they’re trying to squeeze more revenue out of each store by expanding and improving the services they offer and making them more competitive with the grocery chains and big retailers like Walmart that have muscled into the prescription business.
Walgreen also announced the closing of 76 stores last year. The latest round comes as the company expands on a $1 billion, three-year cost reduction plan it announced in August.
Walgreen also said it will reorganize its corporate operations and streamline its information technology and other functions. It expects these moves to add $500 million to its cost reduction goal.
Drugstore chains have been dealing with shrinking profitability in their main business — prescription drugs — as the gap narrows between the wholesale cost of drugs and the reimbursement pharmacies receive for filling prescriptions.
Late last year, Walgreen completed its purchase of the remaining stake of Alliance Boots that it didn’t already own. The company was renamed Walgreens Boots Alliance Inc.
Walgreen initially bought a 45 percent stake in Alliance Boots in 2012 for about $6.7 billion in cash and stock.
Walgreens also said Thursday that it earned $2.04 billion, or $1.93 per share, in its fiscal second quarter. Earnings, adjusted for one-time gains and costs, were $1.18 per share, which beat analyst expectations.