Walgreens is planning to close around 1,200 locations, as the drugstore chain and its rivals struggle to define their role for U.S. shoppers who no longer look to them first for convenience.
Drugstores that once snapped up prime retail space in towns and cities across the country are in retreat. They’ve been battered by shrinking prescription reimbursement, persistent theft, rising costs and consumers who have strayed to online retailers or competitors with better prices.
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The boost they received from taking the lead on vaccinations during the COVID-19 pandemic has long since faded.
Walgreens’ announcement Tuesday morning comes as rival CVS Health wraps up a three-year plan to close 900 stores and Rite Aid emerges from bankruptcy, whittled down to about 1,300 locations.
As the companies retract, they raise concerns in many communities about access to health care and prescriptions.
Drugstore leaders and analysts who follow the industry say smaller versions of these chains have a future in U.S. retail, but they're still trying to understand how that will play out.
“They’ve really got to rethink how they do business and, most importantly, what they mean and what value they bring to the customer,” said Neil Saunders, managing director of consulting and data analysis firm GlobalData.
Walgreens Boots Alliance Inc., which runs about 8,500 stores in the U.S., said in late June that it was finalizing a turnaround plan in the U.S. that might lead to hundreds of store closings.
The company said Tuesday that it will start by closing about 500 stores in its current fiscal year, which started last month.
Walgreens didn’t say where the store closings would take place. It will prioritize poor-performing stores where the property is owned by the company, or where leases are expiring.
CEO Tim Wentworth told analysts Tuesday that the majority of its stores, or about 6,000, are profitable and provide the company with a foundation to build on.
“This solid base supports our conviction in a retail pharmacy led model that is relevant to our consumers, and we intend to invest in these stores over the next several years,” said Wentworth, who became CEO nearly a year ago.
Wentworth said the remaining Walgreens stores will help the company respond more quickly to shifting consumer behavior and buying patterns. The company also is taking another look at what it sells in its stores and planning to offer more Walgreens-branded products.
Walgreens also is experimenting with some smaller stores that would be less expensive to operate.
Drugstores also have been pushing to offer more care, with pharmacists diagnosing and treating the flu, strep throat and COVID-19 in many states. Pharmacists say they can play a key role in keeping their customers healthy since they often see people more frequently than family doctors.
Pharmacists can help patients monitor their blood pressure, manage diabetes and quit smoking, among other things.
CVS also is squeezing primary care clinics with doctors into some of its stores. But Walgreens is backing away from a similar push.
The Deerfield, Illinois, company said in August that it was reviewing its U.S. health care operation, and it might sell all or part of its VillageMD clinic business. That announcement came less than two years after the company said it would spend billions to expand it.
Saunders, the analyst, said Walgreens has neglected its stores in recent years as it built its business through acquisitions. He said the appearance of the chain’s locations has suffered, and a lack of staffing hurts customer service.
He noted that store visits are slumping, and the company has lost market share.
“And that has unraveled some of the economics of these stores,” he said.
Saunders said drugstores “have really shot themselves in the foot” because they no longer have a clear way to differentiate themselves from other retailers.
“When you want to get the big bucks from consumers, you have to be a destination for something,” he said. “And unfortunately, drugstores have increasingly become destinations for nothing.”