Walgreens Facing New Challenges: Competition from Amazon and Regulatory Changes

Walgreens Boots Alliance is facing a year full of challenges—the pharmacy chain's stock has lost considerable value in recent months. A significant reason for this is declining reimbursement payments from insurance providers, an unsuccessful acquisition, and changing consumer purchasing behavior, with consumers increasingly acting cost-consciously. Amid this tense situation, a new competitor is emerging: Amazon. For a long time, the pharmacy sector was considered resistant to the e-commerce trend. Traditional and online mail-order pharmacies have existed for some time now, but they have not yet been able to meet the need for immediately available medications. Amazon's entry with an extensive range of same-day deliveries could fundamentally change this situation. Amazon launched its online pharmacy service in 2020 and began testing same-day deliveries in selected cities last year. Since March, the company has expanded its services to the Los Angeles and New York City metropolitan areas and has ambitious plans for 2025. The e-commerce giant intends to expand its network by 20 more cities, including Boston, Dallas, and Philadelphia. While this development represents a source of new business opportunities for Amazon, it means additional pressure for Walgreens, especially considering the company is contemplating closing one-quarter of its stores. The strategy of closing unprofitable stores could lead to more efficient locations, but Amazon's tempting offer of free same-day delivery might entice customers to not fulfill their prescriptions in-store anymore. In addition to the challenges posed by Amazon, the pressure from the so-called Pharmacy Benefit Managers (PBMs) remains the main issue for Walgreens. With their practices, these often create untenable conditions, as pharmacists sometimes even incur losses when dispensing certain prescription medications. Walgreens is striving to convince the major PBMs of a model that would compensate pharmacies for their role in reducing healthcare costs. The US government has also targeted the influence of the PBMs, and the Federal Trade Commission (FTC) recently sued the largest providers. A court decision in favor of the government could provide more transparency and improve conditions for pharmacies. Despite the current challenges, analysts see potential for Walgreens' stock to recover. The closure of deficit-ridden stores as well as a possible divestiture of unprofitable investments could have a positive effect in the long term. A favorable court decision against the PBMs could also serve as a catalyst for the stock.