Walgreen’s is the kind of company that can make an investor very worried. It’s an "old fashioned" retailer, and the company has certainly seen dramatica changes in its markets. Over the last decade, we have changed how we purchase licensed pharmaceuticals, as well as how we think about "drug stores" as many competitors have begun offering to fill prescriptions. The "corner pharmacists" has practically disappeared. Is Walgreen’s a company on the brink of disaster?
As I’ve written before, look for a growth stall. Any time a company sees declining revenue or profits for 2 or more consecutive quarters, or two or more quarters of declining year-over-year sales or profits, the company enters a growth stall. When this happens, there is a less than 7% chance the company will ever again sustain growth of a meager 2% per year. Interestingly, Walgreen’s has not stalled. This despite all the changes in insurance rules about drug payments, the advent of on-line and mail-order pharmacies, corporate moves to drastically cut employee drug costs, the entry of new competitors such as discount retailers (WalMart and Target) and just about every grocer, and competitor moves to offer generic drugs at extremely low prices.
At its recent annual meeting (see article here), the new CEO very clearly identified many of these influences as Challenges the company must face. He followed this up by listing all the actions Walgreens had taken to set up White Space projects to maintain company growth, which include but are not limited to: digital photo processing, refilling printer ink cartridges, introducing exclusive department store type cosmetics, and now even opening in-store health care clinics for walk-in customers. As the CEO, Jeffrey Rein said, "We’re testing everything we possibly can to see what happens, to see what does work. We don’t know until we put it out there." After a very clear statement that the company faces many market shifting Challenges, similarly clear statements about using White Space to drive new growth.
This new CEO is not an outsider by the way. He’s a 25 year company veteran. So it’s clear that companies can internally develop leaders who can recognize Challenges, Disrupt and establish White Space. Whether Walgreens can maintain its 32 years of ongoing growth is no sure thing. The fact that the company has not stalled however is a great testament to identifying Challenges and reacting. As a company that is facing tremendous Challenges, Walgreen’s leadership is a model of how to keep up the growth by using White Space.