Walgreens, one of the largest pharmacy chains in the United States, has announced plans to close approximately 1,200 stores over the next three years. This move is part of a broader strategy to revitalize its US operations amid growing competition and declining profits from prescription payouts. The pharmacy chain is grappling with significant challenges as it seeks to streamline its business and return to profitability.
- Store Closures & Cost-Cutting: Walgreens plans to close 1,200 stores over the next three years to streamline operations and reduce costs by $1 billion, as about 25% of its locations are currently unprofitable.
- Pharmacy Industry Challenges: Walgreens, along with competitors like CVS and Rite Aid, faces growing competition from non-traditional outlets such as Amazon and Walmart, along with declining prescription reimbursement rates.
- Alternative Revenue Streams: Both Walgreens and CVS are investing in primary-care clinics and exploring new prescription payout structures as they seek to diversify revenue streams and adapt to a changing marketplace.
- Focus on Efficiency: Walgreens is also increasing its focus on store-brand products and exploring ways to reset reimbursement frameworks, while aiming to rehire employees from closed locations.
The decision to close these stores was confirmed by Walgreens’ Chief Executive, Tim Wentworth, who stated that around 25% of the company’s stores are currently unprofitable. Walgreens has been actively pursuing cost-cutting measures, aiming to reduce expenses by $1 billion. This initiative has already seen the closure of some stores, changes in leadership, and the renegotiation of deals with insurance providers. According to CNBC, the company’s recent financial reports showed a net loss of $3 billion in the last quarter, which was better than expected, with sales rising by 6%.
Walgreens is not alone in its struggle. Other major pharmacy chains like Rite Aid and CVS are also facing similar challenges. Rite Aid recently emerged from bankruptcy, while CVS has closed stores and is considering a possible breakup to undo its mergers with Aetna, an insurance company, and Caremark, a pharmacy benefits manager. The competitive landscape for pharmacy chains has changed dramatically, with convenience stores, grocery stores, and big-box retailers like Amazon and Walmart now filling prescriptions and luring customers away from traditional pharmacies.
The over-expansion of pharmacy chains, which led to thousands of locations with long-term leases on expensive corner properties, is now being seen as a strategic misstep. Many customers have criticized these stores for being understaffed and for locking up items to prevent theft, making shopping inconvenient. Pharmacies have also cited declining reimbursement rates as a major factor in shrinking profits from prescription services.
In response to these pressures, both Walgreens and CVS are exploring alternative revenue streams. They have invested in primary-care clinics, although this venture requires substantial time and financial resources. Additionally, Walgreens has proposed new prescription payout structures and indicated a willingness to exit unprofitable lines of business. CEO Wentworth expressed confidence in resetting reimbursement frameworks over the next two to three years.
Another strategy for Walgreens involves increasing the presence of store-brand products, a tactic that has been successful in its British subsidiary, Boots, though it has yet to gain traction in the US market. The company also plans to rehire employees from stores that will be closed, emphasizing that the turnaround plan will take time to implement fully.