Dropping by a convenience store on the way home to pick up shampoo and finding that you have to ask an employee to unlock a cabinet to get it out for you can be a pain. Even Walgreens’ CEO admits the practice costs the stores money.
However, it doesn’t look like the Deerfield, Ill.-based company won’t be unlocking the items any time soon.
“It is a hand-to-hand combat battle still, unfortunately, but it does impact how sales work through the store because when you lock things up, for example, you don’t sell as many of them,” said Wentworth during a Jan. 10 earnings call, referring to theft. “We’ve kind of proven that pretty conclusively.”
Theft, also known as “shrink,” in the context of retail revenue has been an issue in recent years – for example, the National Retail Federation reported that shrink accounted for $112.1 billion in losses in 2022. Last summer, Audacy station WCCO News Talk reported that Bloomberg Retail Analyst Poonam Goyal said that locked cabinets in stores like Walgreens and CVS have even been pushing customers to shop online more.
“It is a little uncomfortable to, you know, have to go into a store and have to ask someone to open up these cabinets,” he said. “It’s not the best shopping experience.”
Still, the threat of theft is enough for Walgreens to avoid throwing away the lock and keys. Wentworth did say that he had recently met with the head of asset protection to look at creative solutions to “shrink” from theft.
“I don’t have anything magnificent to share with you today,” he admitted.
According to a Jan. 10 press release, the first quarter operating loss was $245 million, compared to an operating loss of $39 million in the year-ago quarter. This Thursday, the company announced that its board of directors was suspending a cash dividend historically paid to stockholders on a quarterly basis.
“This change in capital allocation is aimed at strengthening [Walgreens Boots Alliance]’s balance sheet by reducing debt over time and improving free cash flow,” said a press release. It also said: “The company’s cash needs over the next several years, including with respect to litigation and debt refinancing, were important considerations as part of the decision to suspend the dividend.”
During the Jan. 10 earnings call, Walgreens said a “significantly higher run rate on the legal payments,” was impacting cash flow in addition to shrink.
That “run rate” is expected to come down in he future.
One notable legal issue Walgreens has recently faced is a $200 million lawsuit from CoolScreens, a startup from Argo Tea founder Arsen Avakian that it worked with to install screens on the doors of refrigerators in Walgreens stores that obscured shoppers’ view of what is inside and played advertisements. Walgreens countersued, but customers were already annoyed by the time the legal documents started flying.
“The company wants to engage more people with advertising, but the reaction, so far, is annoyance and confusion,” CNN reported in 2022. According to a 2023 report from The Wall Street Journal, the screens would show incorrect prices and items, they regularly froze or went dark, and court documents claimed that some even sparked and caught fire. Bloomberg called the situation a “fiasco” last month.