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Why Walgreen's Purchase of Drugstore.com Will Cement the Chain's Leadership

A year after its big grab to buy the Duane Reade drugstore chain, Walgreens (WAG) is snapping up Drugstore.com in a $429 million deal that will add websites such as Beauty.com and SkinStore.com and a 60,000 products to its already massive offerings, not to mention immediate access to the sites' more than 3 million devotees. But Walgreens acquisition is wise for other reasons.

Massive appeal
Unlike Walmart (WMT) or even Dollar General (DG), there may be no such thing as too big for Walgreens. Consider: The population is aging. The U.S. Administration on Aging reports that in 2009, those 65 and older numbered 39.6 million, representing 12.9 percent of the U.S. population, or about one in every eight Americans. They have increased by 10.4 million just since 2007 -- that's an average of 30,000 each day.
Because so many Boomers are fit and relatively healthy heading into septuagenarian status, they tend to eschew services designated for "the elderly." Transgenerational Design Matters reports that aging Baby Boomers will seek out places and products that "accommodate rather than discriminate, sympathize rather than stigmatize, and appeal to users of all ages and abilities."

As a drugstore that wants to be a destination for healthcare as well as an array of groceries and sundries, Walgreens is well positioned to attract all manner of shoppers. So with 8,161 locations and counting (including 127 medical facility pharmacies), Walgreens is just hitting its stride.

E-commerce equally appealing
Adding Drugstore.com feeds the company's potential to grow without the burden -- and limitations -- of physical stores. The average Walgreens carries about 18,000 different items. That's impressive, but a drop in the web bucket when you consider the collected offerings of Drugstore.com, Beauty.com and SkinStore.com. Not to mention the cache that comes with such deluxe brands as L'Occitane, Fresh, Nars, and others.

It will be interesting to see how Sona Chawla, president of e-commerce for Walgreens, will leverage this potentially lucrative addition. When she came on board in 2008, it was to oversee a team dedicated to building the sales, service and customer experience of Walgreens.com, while driving store traffic through the Web site and growing online profitability. There's serious potential in cross-merchandising and promoting for instance a luxe Nars blush alongside a lower-end workhorse like Maybelline's bestselling Great Lash mascara.

There's an app for that
Walgreens' mobile apps gained traction during the second quarter, with more than half of all prescription refills ordered through its mobile app being sent via its Refill by Scan feature. The feature, launched in November, enables iPhone or Android smart phone users to scan the barcode printed on a prescription label to order refills. For perspective, the company now fills one in every five U.S. retail prescriptions with industry-leading 20.1 percent market share.

Bringing Drugstore.com and subsidiaries into the fold should increase those adoption numbers as well as provide yet another channel for cross-selling.

Image via Walgreens
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