Large US pharmacy chain to close more stores

Walgreens, one of the largest pharmacy chains in the United States, announced plans on Thursday to close a substantial number of its approximately 8,600 locations over the next three years because they are "underperforming".

CEO Tim Wentworth told industry analysts that roughly 25 percent of Walgreens stores are in that category and a "significant portion" of those are slated for closure. Walgreens closed about 200 stores in 2019.

The exact number of closures hasn't been finalized, but Wentworth emphasized that the move is necessary due to the unsustainable nature of the current pharmacy model. He highlighted several factors contributing to the underperformance of stores, including their proximity to one another, profitability issues and struggles with theft.

"Everything has been on the table. We are at a point where the current pharmacy model is unsustainable," Wentworth said, adding that Walgreens will attempt to revitalize the remaining struggling stores, but closures will continue if improvements aren't made.

The pharmacy giant, based in Deerfield, Illinois, said a majority of employees who work at stores to be closed will be moved to other stores.

Walgreens' struggles are reflective of broader industry trends affecting major US drugstore chains, including Rite Aid and CVS.

Rite Aid, the third largest standalone pharmacy chain in the United States, recently filed for bankruptcy and announced last November that it would close roughly 400 to 500 of its approximately 2,200 stores. It has faced a crippling $3.3 billion debt load and costly legal battles related to its alleged role in the opioid crisis.

CVS, the largest US pharmacy chain, closed 244 stores between 2018 and 2020 and announced plans in 2021 to close 900 stores by 2024.

The retail pharmacy sector has long been dominated by revenue from filling prescriptions, but profits from that segment have declined in recent years due to lower reimbursement rates for prescription drugs.

The front end of drugstores where snacks and household staples are sold faces intense pressure from larger competitors such as Amazon, Walmart and Dollar General, especially in rural areas.

"Our customers have become increasingly selective and price-sensitive in their purchases," Wentworth said. Walgreens reduced the prices of some products in May. The move attracted more customers but cut into profit.

Theft has become a significant problem for drugstores in some locations, causing them to lock up products, which has worsened the customer experience.

According to a National Retail Federation security survey, retail shrink — or theft — accounted for an estimated $112.1 billion loss in 2022, which is 1.6 percent of total retail sales across that year. Some of the losses are due to external theft.

The suspects in the thefts have become increasingly aggressive. The survey found that 8 out of 10 retailers reported increased incidents of "violence and aggression". Such incidents often force the store to spend extra to lock up merchandise and hire security personnel, which drives away customers and leads to unprofitable stores.

In response, drugstores have attempted to pivot into the more lucrative healthcare industry by becoming primary care providers. CVS acquired health insurer Aetna, and Walgreens took a majority stake in the primary care network VillageMD. However, Walgreens' strategy didn't work, and the company took a $6 billion loss getting out of VillageMD this year.

Retail pharmacy chains' overexpansion in the past decades often pushed out local pharmacies, leading to a significant reduction in independent pharmacies. According to consulting firm McKinsey, the number of independent pharmacies decreased by nearly 50 percent from 1980 to 2022. Major chains have been shuttering stores for years.

The loss of retail pharmacies can create substantial voids in communities, particularly affecting lower-income households. A 2020 study published in the Journal of the American Medical Association found that roughly 1 of every 8 pharmacies closed between 2009 and 2015, disproportionately affecting independent pharmacies and low-income neighborhoods.

The study indicated that pharmacies at the greatest risk of closure are those with a large customer base on public insurance, which tend to have lower reimbursement rates than private plans.

Agencies contributed to this story.