Walgreens has announced plans to close approximately 1,200 locations by 2027, with 500 closures expected over the next year. These closures are a significant increase from previously announced plans to shut down 300 underperforming locations. The chain has struggled with decreased prescription drug payments and fierce competition from online retailers, prompting the need for a strategic overhaul under CEO Tim Wentworth.
Despite experiencing stronger-than-expected sales in the past quarter, Walgreens reported a $3 billion loss, largely due to writedowns of a Chinese pharmaceutical chain and a home care provider called CareCitrix. Retail analyst Neil Saunders believes that the chain’s past focus on acquisitions has come at the expense of in-store operations and sales, leading to a situation where many stores are unprofitable. The closures are seen as a necessary step for the company to course correct and improve its financial performance.
The closures are part of a larger trend of challenges facing drugstore chains, which have been struggling with declining profits from filling prescriptions. Factors contributing to this decline include lower reimbursement rates for prescription drugs and increased competition from online retailers such as Amazon. CVS and Rite Aid have also faced difficulties in recent years, with CVS announcing job cuts as part of a cost-saving initiative.
In addition to challenges in the prescription drug business, drugstore chains also face pressure in the front-end of their stores, where they sell snacks and household staples. Larger competitors like Target and Dollar General have been encroaching on this space, further impacting the profitability of traditional drugstores. In response to these challenges, Walgreens has reduced prices on over 1,000 items in an effort to attract price-conscious consumers and regain their loyalty.
CEO Tim Wentworth has expressed confidence in the company’s ability to undergo a turnaround, stating that while it will take time, it will ultimately result in significant financial and consumer benefits over the long term. Despite the closures being a significant admission of failure, Saunders believes that eliminating underperforming locations will ultimately strengthen Walgreens’ financial position in the future. Following the announcement of the closures, Walgreens’ stock rose nearly 4% in premarket trading, though it remains down nearly 70% for the year.
Overall, the closures at Walgreens reflect a broader trend of challenges facing traditional drugstore chains as they navigate changing consumer preferences, increased competition, and evolving market dynamics. The company’s decision to shutter underperforming locations is a strategic move aimed at improving its financial performance and positioning itself for long-term success in a rapidly changing industry.
