Walgreen Expands in Chicago

Leading retail pharmacy chain Walgreen Co. (WAG - Analyst Report) has recently launched a project called ‘Chicago Hometown Investment Initiative’, which is expected to offer approximately 600 new job opportunities in the city over the next couple of years and increase fourfold the number of food oasis stores of Walgreen (from 11 to nearly 50).

The company believes that the expansion of downtown office space for E-commerce, information technology and related areas will provide half of the jobs committed. The remaining 300 jobs will be created through new store openings and remodeling of some of 142 Walgreen drugstores in Chicago.

With the acquisition of drugstore.com on June 3, 2011, Walgreen has started planning for a downtown office space expansion in Chicago with the intention of establishing itself as a strong multi-channel retailer of health and daily living in the US.

Earlier this month, Walgreen had undertaken an innovative initiative to enhance its sales and distribution by launching Web Pickup service across Chicago. The program willenable customers to shop online at Walgreens.com and pick up the placed orders at the Walgreen stores within an hour. The company has chosen Chicago for the first full market roll out of this Web Pickup program. Presently, Web Pickup is available at 300 locations in the Chicago metropolitan area. The full market roll out across 480 locations is expected to be completed by August, 2011.

Moreover, in order to enhance customer experience, Walgreen has adopted a strategy of Customer-Centric Retailing (CCR), which refers to developing store formats, pricing, promotions, and vendor relationships.

The company is working toward establishing itself as a leading provider of pharmacy, and health and wellness solutions. The company has made continuous efforts over the last few years to align its assets with core strategies. Further, generic introductions continue to boost the number of prescriptions filled.  

We are encouraged by Walgreen’s recent strategic decisions, including the sale of the PBM business and the acquisition of drugstore.com.  Moreover, the company has made satisfactory progress with respect to the CCR rollout and in meeting the targeted savings under the rewiring initiative. The company witnessed traffic growth of approximately 50% over the last two years. Thus, new program development and emphasizing on customers convenience should prove beneficial for the company going forward.

However, Walgreen has been impacted over the past few quarters by high unemployment levels and lower discretionary spending. Moreover, we are concerned about the company’s recent decision of not renewing its contract with pharmacy benefit manager Express Scripts (ESRX - Analyst Report). Currently, we remain ‘Neutral’ on Walgreen.

Read the full analyst report on ESRX

Read the full analyst report on WAG