Poor Management at Walgreen’s – #85

As a stockholder of Walgreens, I have lost all respect for the recent management (5 Years) that covered up the fact that it had losses in the beauty area for three straight years of decline in same store retail sales. In light of industry declines this last year, the industry had two good years out of the last three. On August 29th, the CEO of Ulta was seeing a slow down. Yet Walgreens was expanding into the beauty segment through going upscale during at 3000+ stores, adding fresh products, including the addition of the costliest item represented by the addition of 3500 beauty consultants. It was their way of getting attention in a sinking industry – too late.

Management Lesson:

Be the first to maximize the profitability in recognizing and starting a trend, introducing a new product, and new or other promotion efforts.  Don’t cover-up bad news with quick and knee-jerking reactions. You need a well thought out plan to make major reactionary shifts. Did Walgreens have a conservative plan to affect the industry?

The main reason to acquire Boots Alliance a UK firm in 2014, was not only that it would open new international markets, but it would supply brand name products that could be introduced in an overall slumping market. The marketing people should have been warning management that the acquisition at this time having verified the following trends:

  1. Walgreen’s assumed that they could transfer the leading Brand #7 from the U.K. and make it a household name in the U.S. without taking the following facts into consideration.
  2. S. competition-Sephora, Ulta, and Macy’s Blue Mercy
  3. The Customer is different too. The difference is that they have been trained to buy (private label) as they are growing up. If you are going to come in with a private label Boots#7, you have to market.
  4. K. marketing tactics won’t work in the U.S. because they use celebrities to drive the products.  Because Walgreen’s has not been known as a trend setter. This change in the promotional approach to a product whose, brand has to be built, will require staff, product/packaging design, and lot more marketing strategies than those that deal with layout and floor planning a strategy that has and is continuing to work.

However to build a private label will take time. Walgreen’s doesn’t have the time – as the Consumer is shifting to state of the art skin cleaning products and more emphasis of health with a tie-in to the beauty category. From 2017-2018 the beauty category dropped 1.8% with make up industry sales down 5% a recent two-month period. One advantage that Walgreens has simply to do with size and number of total stores 9500 in the U.S. vs. Ulta’s 1200 and Sephora’s 460. Loyalty memberships 85 million vs. Ulta’s 32 million and Starbuck’s 16 million.

We are facing a challenge of what we need in order to turn Walgreen’s around. First, we should have a company planning meeting with every manager preparing a SWOT analysis of his responsibility. Roll up the SWOT’S until you get the capabilities of every area. Then figure out what can be done immediately, identify and prioritize those things that will take a longer time – but need to get done.

Like drive a major promotional effort maximizing the 85 Million members in the loyalty program.  How about the numerous partnerships that have been established on a helter/skelter basis (Kroger etc.). We haven’t seen a unified effort to maximize this market power. We can’t believe that Walgreen’s hasn’t leveraged their stores and locations to get the American woman to act more like their European counterparts. How about Social media to get more exposure to a powerful website to praise, introduce new products and create an environment that takes care of the American woman. Continue selling her from a point of view making her life easier with every Walgreen service doing just that.  There should be a +++ PR Campaign that is on–going and touching all phases of PR, pitching the idea that you are replacing the family pharmacy. CVS isn’t doing that – they look and the staff acts like a warehouse operation.

At the same time, do we need to know and anticipate the competition? You bet your Boots, that we should know every detail about our competition and their successes and failings, a formal competitive intelligence function should be established, if one doesn’t already exist.

The front-end retail sales only represent 30% of total sales at Walgreens, while 70% of sales are pharmacy oriented, and this represents a future look that requires a whole series of fixes. With major competitors all positioning themselves for a spot on the Socialized Medical Train, we have an environment that will require a whole series of upside and downside contingency strategies.  While I would hope such strategies are planned for the pharmacy market on a global basis, I will say that planning for the 30% of front-of-store sales was poorly done, and the last decade reflected a speak a lot, but no evidence of effective planning.

In order to avoid criticism about not knowing anything about the workings of Walgreen’s, and we don’t have an in-depth knowledge, but we are in the business of reporting variations and the obvious – to quote my MOM – “you can’t change dumb”. I extend my regrets if I have overextended my observations, but I do call them the way I see them. In the case of Walgreen’s Management team “IT DOES START AND END WITH MANAGEMENT”.