CEO Greg Wasson, who took over in 2009, has been pushing a new long-term vision for company's chain of Walgreens drugstores, one based more on services than on product sales.
The strategy is called "Well Experience," it's managed by vice president Bryan Pugh, and it aims to make Walgreens stores "a new health and daily living destination" rather than just convenience stores with prescription counters.
Pugh previously worked at Tesco, the British grocer, where he launched a U.S. chain called "Fresh & Easy," which that company has since abandoned.
So far, only about 600 of the 8,200 Walgreens stores have been remodeled based on Pugh's proposals. An ultimate version of Well Experience can be seen at the company's store in the Chicago Loop: A 27,000 square foot, two-story Walgreens with a manicurist and sushi bar opened in 2012.
The idea is that services, including the Walgreens Healthcare Clinics, formerly called Take Care clinics, can provide primary care through nurses, and that other wellness services can be layered on top of the model so that people spend more time in the stores.
The promise of Well Experience has helped Walgreen shareholders to fat gains since Wasson became CEO. While rival CVS (CVS) has seen its stock gain more than 300% over the past 10 years, Walgreen shares have risen only about 100%. But Walgreen has jumped ahead in the last year, gaining nearly 40% vs. 36% for CVS. Walgreen shares were recently changing hands at about $65.71.
CVS has doubled down on drugs since buying its pharmacy benefit management business, Caremark, in 2007, and it recently announced it will stop selling tobacco products later this year. Walgreen has yet to follow suit.
On Tuesday Walgreen announced net income of $754 million, 78 cents a share, which was down from $756 million, or 79 cents a share, a year earlier.
Results would have been worse save for Alliance Boots, a European chain in which Walgreen took a 45% stake in 2012 with an option to buy the rest next year. Walgreen raised its estimate of "synergies" from that alliance by $25 million.
The European results provided cover for Wasson to announce the closing of 76 Walgreens, which he said will save $40 million to $50 million a year. That's about half the number of stores it plans to open in 2014, so store counts will actually increase, Wasson said.
In announcing the closings, Wasson also hinted at the company's new sales pitch, which is to become "a global company." Alliance Boots mainly gives the company a foothold in Europe, although it has some pharmacies in Thailand and a joint venture in China.
Back in the U.S., Walgreen is facing increasing pressure on Well Experience from Change to Win, a union-backed initiative that claims that taking pharmacists out from behind their counters leaves the counters unmanned, lets others fill orders, and puts patients at risk.
The Department of Health and Human Services is investigating the complaints, based on a concern for patient privacy, and three states (Maryland, Hawaii and Connecticut) have rejected the format based on those concerns. The group is also acting against Well Experience through a complaint to Florida regulators.
The store closings and the emphasis on European expansion will buy Wasson time to expand upon Pugh's Well Experience strategy in more markets, but analysts should be asking whether that strategy can, in fact, succeed, or whether Pugh is doing just what he did at Tesco, creating something that sounds appealing but winds up hurting the bottom line.
At the time of publication the author owned shares of WAG.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.