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Walgreens' Drugstore.com Acquisition Marks Crucial Online Step

This article was originally published in The Tan Sheet

Executive Summary

Walgreens gains access to 3 million customers and takes a step to catch up with competitor CVS in OTC online sales with its acquisition of drugstore.com.

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Drugstore.com reworks Medco partnership: Revenues from drugstore.com's strategic alliance with Medco Health Solutions reaches "well below expectations" in the second quarter, and the Bellevue, Wash., retailer dials down 2010 projected revenues from the partnership to a range of $16 million to $20 million, from previous guidance of $30 million to $60 million, CEO Dawn Lepore says. Revenue sharing on the Medco Health Store venture, which has 1.4 million registered members, will change to a cost-plus model from a contribution margin split arrangement to give Medco more flexibility in pricing and ensure greater financial return for drugstore.com, Lepore said. The firms announced Aug. 3 their OTC retail alliance will continue through 2018 (1"The Tan Sheet" Jan. 18, 2010). Another "key growth initiative" for drugstore.com, its microsite strategy, is rapidly increasing sales, Lepore said, with six microsites launched in the past 10 months. During an earnings call, executives were positive about the firm's OTC performance - net sales in the category climbed 34.5 percent to $95.9 million in the quarter ended July 4 and 31.7 percent to $188.9 million in the half. Net losses of $2.7 million in the quarter and $5.3 million in the half, compared to profits of $1 million and $1.9 million, reflected increased costs and the loss of revenue from divested operations

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