Disruptions vs. Disturbances - Walgreens

Walgreens is apparently going through a dramatic change in leadership.  Drug Store News reported that the top 2 folks, including the top merchandiser, have left Walgreens in "What it Means and Why It's Important: Wlagreens confirms departure of Van Howe."  The article discusses the "old guard" departure and arrival of younger, new leaders.  The magazine clearly paints this as a Disruption. 

But I have my doubts.  There's no discussion of future scenarios in which Walgreens is going to be a different company - not even a different retailer.  There's no discussion about competitors, and how more prescription medications are being purchased on-line from new competiors, or even how Walgreens intends to be very different from historical brick-and-mortar competitors like CVS or Rite-Aid.  No discussion about how the company might need to change its real estate strategy (being everywhere.)

There's really no discussion about changing the Walgreens' Success Formula.  It's Identity has long been tied to being first and foremost a "drug store" (or pharmacy).  A market which has been attacked on multiple fronts, from grocers and discounters like WalMart entering the business to the insurance mandates of buying drugs on-line.  To be the biggest, Walgreens' strategy for several years has been tied to opening new stories practically every day.  It was shear real estate domination - ala Starbucks.  Although it's unclear how profitable many of those stores have been.  Tactically Walgreens has moved heavily into cosmetics as a high turn and margin business, then items it an bring in and churn out very quickly - such as holiday material (Halloween, Thanksgiving, Christmas, Valentines Day, St. Patrick's Day, etc.), shirts, sweatshirts, on and on - stuff brought in then sold fast, even if it had to be discounted quickly to get it out the door.  Churn the product because the goal is to sell the customer something else when they come in for that prescription.

There is no discussion of these executive changes creating in White Space to develop a new Walgreens.  Without powerful scenarios drawing people to a new, different future Walgreens - and without a strong sense of how Walgreens intends to trap competitors in Lock-in while leveraging new fringe ideas to grow - and without White Space being installed to develop a new Success Formula to make Walgreens into something different ----- this isn't a Disruption.  It's a disturbance.  Yes, it's a big deal, but it's unlikely to change the results.

Reinforcing that this is likely a disturbance the article talks about how the company is starting to obsess about store performance - down to targeting every 3 foot section for better turns and profits.  The new leaders plan to work harder on supply chain issues, and store plannograms, to increase turns.  They intend to put more energy into prioritization and reworking promotions.  In other words, they want to execute better - more, better, faster, cheaper.  And that's not a Disruption.  It's just a disturbance.  This may make folks feel better, and sound alluring, but experience has shown that this is not a route to higher growth or higher sustained profitability.

I don't expect these management changes to remake Walgreens.  Walgreens has been a pretty good retailer.  The Success Formula worked well until competitors changed the face of demand, and market shifts wiped out access to very low cost capital for building new stores.  The Success Formula's results have fallen because the market shifted.  Refocusing energy on being a better merchandiser won't have a big impact on growth at Walgreens.  The company needs to rethink the future, so it can figure out what it needs to become in order to keep growing! 

Real Disruptions attack the status quo.  They don't focus on better execution.  They attack things like "we're a pharmacy" by perhaps licensing out the pharmacy in every store to the pharmacist and changing the store managers.  Or by selling a bunch of stores to eliminate the focus on real estate.  Or by promoting the Walgreens on-line drug service in every store, while cutting back the on-hand pharmacy products.  Those sorts of things are Disruptions, because they signal a change in the Success Formula.  Coupled with competitive insight and White Space that has permission to define a new future and resources to develop one, Disruptions can help a stalled company get back to growing again.

But that hasn't happened yet at Walgreens.  So expect a small improvement in operating results, and some financial engineering to quickly make new management look better.  But little real performance improvement, and sustainable growth, will not occur.  Nor will a sustained higher equity value.