Shares of pharmacy retail chains CVS Health Corp. (CVS), Walgreens Boots Alliance Inc. (WBA) and Rite Aid Corp. (RAD) are all down on Wednesday following news that e-commerce and cloud computing giant Amazon.com Inc. (AMZN) has taken a larger stride into their business. (See also: UPS, FedEx Fears on Amazon Are Overblown: JPMorgan.)
Seattle-based Amazon now sells branded over-the-counter medications such as Advil, Mucinex and Nicorette, as well as options from Perrigo's generic GoodSense brand on its global platform, according to CNBC. Amazon's Basic Care line, launched in August, includes 60 products ranging from ibuprofen to hair regrowth treatment.
While, technically, Amazon does not own the products, as they are manufactured by private-label Perrigo, the move could present a major headwind for traditional pharmacy retailers as more consumers go online for their OTC products. Further, an exclusive brand would not be subject to the fluctuating prices of its rivals. The heightened competition could spur a price war, further pressuring store-brand profit margins in an already disrupted pharmacy space.
Online Retailer Could Squeeze Pharmacy Giants
Long-standing brick-and-mortar retailers CVS, Walgreens and Rite Aid have already lost volumes to "grab and go" items online. In the past, customers have come in to quickly buy OTC medicine, leaving the store with a few extra add ons such as cosmetics, which stood as a major source of revenue for retailers.
Amazon's sheer size gives it the ability to undercut prices and take up unprofitable ventures just to test out the waters and should worry traditional market leaders. While an Amazon spokeswoman said Basic Care does not give it a pathway into selling prescription drugs, there has been a lot of buzz in the recent period over the tech giant's growing interest in the space.
Earlier this year, Amazon announced a partnership with JPMorgan Chase & Co. (JPM) and Berkshire Hathaway Inc. (BRK.A) to create an independent health care company for their employees in the U.S. with the aim of lowering costs. Amazon has also reportedly entered exploratory talks with generic drugmakers. (See also: Walgreens CEO: Amazon Not Yet a Major Rival.)