Walgreens announced it would close 200 stores as part of a restructuring and cost-cutting initiative now that its merger with Alliance Boots is complete.
The new company, Walgreens Boots Alliance (NYSE:WBA), is now the second-largest retailer in the world after Walmart (NYSE:WMT). The multi-year $16 billion deal was final in late 2014 when Walgreens purchased all remaining shares of the European health and beauty retailer.
Management had considered a plan to relocate its headquarters from Deerfield, Illinois, to Switzerland for tax purposes, but was met with opposition and ultimately decided to remain in the United States where it operates more than 8,000 stores.
And it's these U.S. operations that will feel the brunt of the cost-cutting measures.
Walgreens announced in August 2014 a three-year, $1 billion cost-reduction initiative, and subsequently identified additional opportunities for cost savings, primarily in its retail pharmacy division in the United States.
The retailer will close 200 U.S. stores; reorganize corporate and field operations; drive operating efficiencies; and streamline information technology and other functions. "These actions are designed to restructure and invest in the company's future in a way that is better for customers and simpler for employees, resulting in a faster and more agile company," according to a company statement.
As an international retailer, Walgreens Boots Alliance operates more than 11,000 stores in 25 countries and more than 8,200 stores in the United States. The initiative is expected to produce additional cost savings of $500 million for a total operational cost reduction of $1.5 billion by the end of fiscal 2017.
Prior to the Alliance Boots merger, Walgreens had been aggressively building out U.S. operations. There have been new flagships and remodeled stores with expanded health and wellness, beauty and convenience food items complete with new store brands. The retailer also launched a new shopper loyalty program, along with a well-regarded mobile initiative that many consider among the best in all of retail.
Now that the focus is on cost-cutting, it remains to be seen if Walgreens can sustain this pace of innovation.
Walgreens bets on Duane Reade mobile tests
Walgreens opens wellness experience flagship in Honolulu
Walgreens, WebMD launch rewards, prescription app
Walgreens, Rite Aid post strong quarterly earnings
Walgreens shareholders sign off on Alliance Boots merger