Walgreens Pulling back from Ecommerce

Walgreens Boots Alliance (NASDAQ: WBA) is greatly reducing its ecommerce footprint.

Walgreens is planning to shut down its Drugstore.com and Beauty.com websites, an SEC filing dated July 27, 2016, indicates. The company will consolidate its American online sales through Walgreens.com after those sites go away. The two sites should vanish from the web by September.

It looks as if Walgreens has become the latest victim of Amazon (NASDAQ: AMZN). The drugstore giant is already struggling with stagnant front-end retail sales. Non-prescription retail sales fell at Walgreens for the last quarter of 2015 and first quarter 2016.

Walgreens’ US retail sales increased by just .1% in second quarter 2016, Reuters reported. That was less than the .7% increase analysts were expecting which was dismal to begin with.

Is Amazon Hurting Walgreens Now?

Walgreens was not able to compete directly with Amazon online. The online-retail Goliath threatens Walgreens; which is heavily reliant on sales of beauty products, nonprescription drugs and toiletries.\walgreens-westgate

Most of those products are small and very easy to ship which makes them perfect items for online retail. There are now hundreds of merchants selling such items directly to consumers through Amazon and Walmart.com (NYSE: WMT). Many of them offer lower prices, and free shipping.

That’s real bad news for Walgreens because non-prescription retail sales make up around third of its American business, Reuters reported. Beauty, haircare and shaving products are major drivers of foot traffic at Walgreens’ stores in urban areas.

Walgreens may have to cut back on sales of such items or look for alternatives. Some products it might consider adding are financial services, more groceries, more ready to eat food, a larger selection of beverages and postage or shipping services. Another amenity Walgreens should consider is adding a pickup area for items ordered online.

A long term opportunity Walgreens should look into is offering same-day delivery of products ordered online. A low-cost means of same-day delivery might be tap the courier services being tested; at Walmart and Sam’s Club, by Uber, Lyft and Deliv.

Is Walgreens Amazon Proof?

The demise of Beauty.com and Drugstore.com should not have a major effect on Walgreens’ bottom line because the company’s core business is growing.

walgreens-interior

US prescription drug sales increased by six percent during second quarter 2016, Reuters reported. Prescription sales are increasing because of the growing use of Medicare Part D.

That means Walgreens is Amazon-proof and a good investment. Prescription drugs are one area of retail Jeff Bezos will probably stay out of. This gives Walgreens an excellent source of revenue Amazon cannot threaten. That revenue source might grow; if the Rite Aid (NYSE: RAD) acquisition goes through, and increases Walgreen Boots’ US footprint.

Another potential means of expanding prescription sales would be to offer prescription delivery through Uber, Lyft or Deliv. That would provide Walgreens with online sales Amazon cannot duplicate.

Despite its vulnerability to Amazon; Walgreens is still a very good investment, because of its prescription business. Its stock still belongs in contrarian and value portfolios because of the 1.81% dividend yield and 10.32% return on equity reported for May 31, 2016.