FINANCE

Analysis: CVS, Walgreens stand to lose the most from Amazon-PillPack deal

Amazon’s acquisition of PillPack is a warning shot in what is about to become a major battle within the pharmacy space. Not only has Amazon finally made a solid move into pharmacy, it has done so via an innovative supplier which helps patients manage and organize their prescription drugs.

In our view, this is only the first play in what will be an increasingly aggressive strategy by Amazon to develop a much more significant presence in the pharmacy market. This is incredibly bad news for traditional players, like Walgreens and CVS, who stand to lose the most from Amazon’s determination to grow its share.

The problem for the traditional players is three-fold.

Firstly, the most loyal part of their pharmacy customer base is the older consumer. Over the next ten years, this cohort will become a much less significant part of the market and this will leave drugstores exposed to younger shoppers who are more likely to use both Amazon and remote pharmacy services. There is a significant risk that drugstores will see a real erosion in pharmacy customer share, especially in urban and suburban areas where Amazon can quickly deliver.

Secondly, both CVS and Walgreens have become particularly reliant on the pharmacy side to drive their businesses forward. Indeed, both companies – and CVS in particular – have consistently overlooked opportunities to improve and enhance their general retail propositions.

This now means that the retail side of the business is largely incapable of driving footfall into stores which could help support the prescription and pharmacy side of the business. This folly of not investing in retail will become apparent over the next few years.

Thirdly, Amazon’s entry into any market will put downward pressure on prices and upward pressure on costs as others try to match its service. This will ultimately result in weaker earnings for drugstores going forward. There may be an opportunity for Walgreens to mitigate this thanks to the firepower of Boots and its potential in higher margin beauty categories, but we are far less optimistic about the prospects for CVS.

These unfavorable dynamics mean that drugstores need to rethink their futures. The addition of more services and positioning themselves as a destination for health advice and simple medical treatments are now more critical than ever. CVS has talked about this, but given Amazon’s advance, action rather than chatter is now required.

It goes without saying that despite Amazon’s determination, the pharmacy market is not as simple as other categories it has entered. Products and services are more complex and there are more regulations and procedures that need to be followed. It is also the case that some consumers may be reluctant to use Amazon for their health needs. Even so, we believe the market is ripe for disruption and, as it has demonstrated time and again, Amazon is just the player to pull that off.

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Amazon shakes up industry with deal to acquire online pharmacy

BY Marianne Wilson

Amazon is making an acquisition that could disrupt the nation’s drug store industry.

The online giant announced it has entered into an agreement to acquire PillPack, an online pharmacy that offers pre-sorted doses of medications and home delivery. The news comes as Amazon has been steadily expanding into the health-care and pharmaceutical business.

Analyst Neil Saunders, managing director of GlobalData Retail, described the deal as “a warning shot in what is about to become a major battle within the pharmacy space.”

“In our view, this is only the first play in what will be an increasingly aggressive strategy by Amazon to develop a much more significant presence in the pharmacy market,” said Saunders. “This is incredibly bad news for traditional players, like Walgreens and CVS, who stand to lose the most from Amazon’s determination to grow its share.

“PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology,” said  Jeff Wilke, Amazon CEO Worldwide Consumer. “PillPack is meaningfully improving its customers’ lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier.”

PillPack packages, organizes and delivers prescription drugs. It sends consumers packages with the specific number of medications they are supposed to take, marked for the specific times.

“PillPack makes it simple for any customer to take the right medication at the right time, and feel healthier,” said TJ Parker, co-founder and CEO of PillPack. “Together with Amazon, we are eager to continue working with partners across the healthcare industry to help people throughout the U.S. who can benefit from a better pharmacy experience.”

The companies expect to close the transaction, which is subject to regulatory approvals, during the second half of 2018.

 

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Bed Bath & Beyond turns in mixed Q1 performance

BY Marianne Wilson

Strong digital growth was offset by declining store sales at Bed Bath and Beyond during its first quarter.

The home goods retailer reported net earnings of $43.6 million, or $0.32 per diluted share, for the quarter, which included the impact of approximately $0.06 from severance costs. Analysts had expected earnings of $0.31 cents per share. Net earnings for the year-ago period were $.53 per diluted share ($75.3 million).

Net sales inched up 0.4% to $2.75 billion, in line with expectations. Same-store sales fell 0.6%, with strong sales growth from the company’s digital channels, and declines from stores in the mid-single-digit percentage range. Analysts were expecting comp sales to rise 0.1%.

As of June 2, the company had a total of 1,557 stores, including 1,017 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, 279 stores under the names of World Market, Cost Plus World Market or Cost Plus, 121 buybuy Baby stores, 83 stores under the names Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, and 57 stores under the names Harmon, Harmon Face Values or Face Values.

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