Walgreen Moves Pay Off: Firing Line

DEERFIELD, Ill. (TheStreet) -- Last fall, Walgreen (WAG Quote) announced it was scaling back store openings even though sales were rising. Walgreen operates one of the nation's largest drugstore chains, battling to dominate the space with industry behemoth CVS Caremark (CVS Quote).

Walgreen saw higher selling, general and administrative costs related to the record opening of 212 stores in the third quarter of 2008. Seeing that the battlefield had changed significantly, Walgreen made a strategic shift to reduce store openings, and it launched a campaign to focus on making its current stores better.

The company announced plans to reduce future store openings to 4% to 4.5% in 2010 and 3% to 3.5% in 2011 to save an estimated $500 million in capital expenditures.

For the past year, Walgreen has cut costs and made its current fleet of stores more user friendly. The company lowered shelves to make the aisles appear less cluttered and scaled back the number of items stocked; it also scaled back on "impulse buy" items. Walgreen used to strike me as a store that MacGyver would love, stocking everything needed to build a bomb, including paper clips, tube socks, a ballpoint pen, rubber bands, nasal spray and a car air freshener. Not anymore.

"Consumers are concerned with rising unemployment, keeping their homes and paying down their credit cards," Walgreen CEO Gregory Wasson told analysts during a conference call Tuesday. Wasson said customers are "focused on value, and they're buying needs versus wants." He's clearly a commanding officer in touch with the situation on the front lines.