Walgreens to shut down e-commerce site Drugstore.com

Dive Brief:

Walgreens Boots Alliance announced on Thursday it will shut down Drugstore.com and Beauty.com—two websites it acquired in 2011—by the end of September, the Wall Street Journal reports.
Walgreens acquired the websites—including VisionDirect.com, which it plans to continue running—for $429 million during a time when Drugstore.com and affiliated sites were the eighth largest pureplay online retailer in the U.S. in sales.
The company will incur a $115 million pre-tax charge as part of the shutdown. The cut is part of a long-term savings plan to strip annual costs down by $1.5 billion by the end of the fiscal year.

Dive Insight:

As consumers shop through a variety of online and offline channels and retailers try to grow their omnichannel capabilities, pureplay retail models have largely fallen by the wayside.

While Amazon made it through the dot com bubble to dominate e-commerce retail, many of the pureplay online retailers from that time are no more, with Drugstore.com being just the latest example. First launched in 1999 as a website selling health and beauty products, the company went public that year at $65 a share, according to the Seattle Times. Drugstore.com entered an agreement with Rite Aid in 1999 that allowed customers to pick up online prescription purchases at Rite Aid brick-and-mortar stores, but reportedly never turned a profit. Over a decade later, Drugstore.com was purchased by Walgreens for $429 million as part of its online expansion strategy.

Drugstore.com isn’t the first e-commerce acquisition by Walgreens that didn't pan out. Earlier this year, Walgreens sold Skinstore.com to U.K. online retailer Hut Group, the Wall Street Journal reported. The shedding of these websites is part of a broader move by Walgreens to cut costs and focus on its own omnichannel.

Over the past year, Walgreens’ strategy has been to focus on developing new omnichannel capabilities on its own website, Spokesman Phil Caruso said in a statement on Thursday. “We have been focusing on building new omni-channel capabilities on Walgreens.com with initiatives that improved assortment and website user experiences, enhanced our digital coupon capabilities to provide more customer value and added digital tools into our stores to elevate our shopping experiences,” Caruso said.

“They want to make sure they can invest more of the equity in Walgreens.com,” Brian Owens, a director at Kantar Retail, told the Wall Street Journal. “Drugstore.com and Beauty.com are distractions.”

Earlier this month, executive vice chairman and CEO Stefano Pessina said Walgreens Boots Alliance managed to meet its goal of cutting $1 billion in expenses since the 2014 merger with U.K. pharmacy giant Boots.

The news comes as Walgreens tries to see through its proposed merger with U.S. drugstore rival Rite Aid for $9.4 billion. A few weeks ago, Walgreens expressed confidence that the merger would go through this year. The company said it will shed 500 stores as part of the merger, a number far below many analysts’ expectations. The company reported U.S. Q3 same-store sales rose 3.9% over the last year, thanks in part to increases in Medicare prescriptions.