Walgreens, the largest chain drugstore in the United States, has announced plans to close approximately 500 stores next year and a total of about 1,200 stores by 2027. This decision comes as the company struggles to compete with online rivals and faces declining prescription drug reimbursement rates. With one out of every seven Walgreens stores set to shut down, the impact on the company’s operations is significant.
Earlier in June, the financially troubled company had already revealed plans to close 300 underperforming stores, with about a quarter of all Walgreens outlets reportedly operating at a loss. Despite achieving sales performance beyond expectations, with a 6% increase in revenue compared to the previous year, Walgreens still incurred a $3 billion loss due to write-downs related to a Chinese pharmaceutical chain and a home care provider called CareCitrix.
In premarket trading, Walgreens (WBA) saw its stock price rise nearly 4%, yet its stock has fallen by almost 70% this year. Competitors like CVS and Rite Aid are also grappling with declining profitability in prescription drugs, attributed to lower prescription drug reimbursement rates and the emergence of new competition from Amazon.
Just recently, CVS announced layoffs of approximately 2,900 employees as part of a $2 billion cost-saving plan, with last year’s layoffs totaling around 5,000 individuals. Additionally, Walgreens’ front-end sales of snacks and household essentials face pressure from the rapid growth of major competitors like Target and Dollar General, particularly in rural areas where Walgreens operates.
In an attempt to attract price-conscious shoppers affected by inflation, Walgreens reduced prices on over a thousand items in May, following the lead of its competitors. Neil Saunders, Retail Analyst and Managing Director at GlobalData Retail, noted that the latest round of store closures by Walgreens signals the company’s acknowledgment of its challenges and efforts to rectify its business direction. Pruning “dead branches” can be seen as a step towards strengthening the company’s financial position gradually.
Walgreens’ CEO, Tim Wentworth, expressed confidence in the company’s long-term prospects, stating that turning the situation around will take time but believing it will yield significant benefits both financially and for consumers. Walgreens, founded in 1901 as a small pharmacy on a Chicago street corner by Charles R. Walgreen, experienced rapid expansion over the years. By 1919, it had already grown to 20 chain stores and garnered success during the Prohibition era by legally selling alcohol for medicinal purposes with a doctor’s prescription.
As of May 2014, Walgreens had a total of 8,217 stores across all fifty states of the US, the District of Columbia, Puerto Rico, and the US Virgin Islands. The company’s journey from its humble beginnings to its current challenges reflects the evolution of the retail pharmacy industry in the face of changing consumer behavior and market dynamics.