Walgreens will close a “significant portion” of its 8,600 U.S. locations over the next three years as it struggles to keep up with a rapidly evolving retail pharmacy industry, the company announced Thursday.
“We are at a point where the current pharmacy model is not sustainable and the challenges in our operating environment require we approach the market differently,” Walgreens chief executive Timothy Wentworth said Thursday during the company’s quarterly earnings call. “We do not expect an improvement in the U.S. retail environment.”
The pharmacy giant, based in Deerfield, Ill., said 25 percent of its stores are underperforming and will be considered for closure. The majority of employees will be moved to other stores, Wentworth said.
While the company did not identify specific locations for closure, the scope of the move could put more Americans at risk of living in pharmacy deserts.
Over the last two years, the nation’s largest pharmacy chains have been closing stores. Walgreens, which has closed 2,000 locations over the past 10 years, has shuttered 484 stores in the United States since February. Rite Aid, which filed for bankruptcy last year, has closed more than 500 stores. CVS has closed about 300 stores this year after announcing in 2021 that it would shutter 900 stores across three years.
Pharmacies can be lifelines in rural or low-income areas, particularly in food deserts – areas that have limited access to healthy and affordable food. Pharmacists are often the most accessible health-care professional for these communities.
In addition to drugs and other health-care items, retail pharmacy chains rely on sales of food and other goods. But consumers have been shying away from discretionary purchases over the past year.
Wentworth, echoing what some other retail businesses have said this year, described inflation-weary customers as “increasingly selective and price-sensitive in their purchases.”
Retail sales for Walgreens fell 4 percent in the most recent quarter compared with the same period last year. Overall revenue, including its British pharmacy chain Boots, increased 2.6 percent. While it’s a modest increase, it represents a loss of market share to competitors that grew faster, said Neil Saunders, managing director of GlobalData.
“Walgreens has been losing front-of-store customers for a while now, and this long-established trend has been exacerbated by the cost-of-living crisis, which has seen customers curtailing the volume of products they buy and shopping around more for the best deals and bargains,” Saunders said.
Walgreens’s uncompetitive pricing has been an obstacle for the chain, he added.
Wentworth said the company is investing in targeted promotions and price cuts, “but they weigh on near-term profitability as we refine our approach.”
Walgreens, which lowered its profit forecast for the year, plans to shake up its store assortment, back away from its primary-care business and build out its loyalty rewards program.
The company plans to expand its private label and shave down its brand offerings to just those that “are helping us win,” Wentworth said. In the last quarter, the chain removed eight national brands from its health and wellness categories, replacing them with Walgreens-branded items. The company will also lean into same-day delivery.
Walgreens’s stock price had plunged 25 percent by midday Thursday.
Retrenchment has been a long time coming in national pharmacy chains, retail analysts say. A comedown from pandemic-era sales of coronavirus vaccines, at-home test kits and other products has hurt profits. The industry also has suffered from increased competition, changing consumer behaviors, retail crime, staffing shortages and underinvestment in stores.
At the same time, chains are seeing dwindling margins on medications, largely because of pharmacy benefit managers, which negotiate with insurers, pharmacies and drugmakers over coverage of certain prescriptions, the price of prescriptions and pharmacies’ reimbursement rates.
Meanwhile, pharmacy workers at the nation’s largest chains have been outspoken about working conditions, with employees at Walgreens and CVS staging multiple walkouts over the past year. A dozen workers have told The Washington Post that circumstances worsened during the pandemic, and the pharmacy staffers said they saw standards decline over the past two years as they were told to do more with less.
Store closures have compounded the workload issue, pharmacy workers said, because remaining stores are flooded with more prescriptions, while rarely getting additional staff to help with the workload.
Wentworth said Walgreens has been working with deans of pharmacy and trade associations on recruiting pharmacists and finding ways to “reinvigorate the community pharmacy labor supply chain.” He added that the company will build out its pharmacy services, such as immunizations, to lure in more patients.
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Hannah Ziegler contributed to this report.
(c) Washington Post
