Walgreens has always been a part of American life, operating approximately 8,500 stores across the United States and Puerto Rico. Over the years, it has expanded its reach into some of the nation’s most underserved communities. However, recent developments have raised questions about the company’s future and its ability to adapt amidst a rapidly changing retail landscape.

The announcement last week that Walgreens Boots Alliance will be sold to private equity firm Sycamore Partners for around $10 billion marks a pivotal turn for the iconic brand. This deal, which encompasses a total value of $23 billion when accounting for debt and other factors, comes on the heels of a challenging fiscal year in which the company reported net losses amounting to $8.6 billion. The timing of the acquisition follows a series of headwinds for Walgreens, including the closure of multiple VillageMD clinics and growing competition in the pharmacy sector.

So, where did Walgreens veer off course while rivals like CVS Health appeared to fare better? Industry experts point to a combination of strategic missteps and shifting consumer preferences as contributing factors to Walgreens’ struggles. According to Michael Abrams, managing partner of Numerof & Associates, Walgreens’ attempts to diversify through acquisitions—such as its purchase of Alliance Boots and a stake in VillageMD—were perhaps misaligned with the reality of the pharmacy business, which operates with flat margins primarily derived from dispensing prescription drugs.

Abrams also emphasizes the impact of evolving consumer shopping habits, as a significant number of customers have begun favoring online retailers like Amazon and health-focused companies like Hims & Hers. In contrast, CVS has capitalized on its pharmacy benefit manager (PBM), Caremark, to create synergies that Walgreens failed to match by missing out on a similar acquisition.

The failure to enhance store profitability and traffic, as Abrams notes, has hampered Walgreens, leading to a product offering that no longer captivates consumers. Competing with businesses that provide similar merchandise at more attractive price points has only compounded Walgreens’ challenges.

Doba Parushev, head of Healthworx—CareFirst BlueCross BlueShield’s innovation branch—echoes these sentiments, noting that CVS has managed better operational outcomes within its retail pharmacies. Parushev highlights CVS’s ability to pivot away from underperforming locations swiftly and integrate diverse healthcare services into its physical locations, further enhancing its competitive advantage.

Additionally, Parushev remarks that CVS benefitted from a more robust financial position due to its acquisition of Aetna, allowing it to better absorb the complications inherent in an aggressive growth strategy. As both companies sought to expand into broader healthcare services, CVS was able to harness its larger scale and available resources more efficiently than Walgreens.

With Sycamore Partners now taking the helm, many wonder what the future holds for Walgreens. Past performances of the private equity firm in managing retail chains raise concerns among commentators like Matt Parr. He points out that Sycamore’s portfolio reflects a history of cost-cutting measures—often resulting in staff layoffs, service reductions, and the closure of locations—which could negatively impact the healthcare access of underserved communities that currently rely on Walgreens.

However, there is a counterpoint to this skepticism. Howard Gutman of MorganFranklin Consulting highlights the potential upsides of the acquisition. He suggests that by going private, Walgreens could escape the relentless pressure for quarter-to-quarter growth, allowing it to audit its business more strategically. This could facilitate necessary changes and enable the company to focus on the long-term growth of its core operations.

In the statement following the announcement, Walgreens CEO Tim Wentworth expressed optimism about the future partnership with Sycamore Partners, indicating a belief that their expertise in guiding retail turnarounds could lead to meaningful value creation over time.