The financial landscape of the American healthcare retail industry is paradoxically transforming. CVS Pharmacy, Walgreens, and Rite Aid, America’s leading drugstore chains, have announced plans to close nearly 1,500 stores nationwide. As the healthcare market evolves, these pharmacy giants seem to be grappling with mounting pressures, leading to an unprecedented walkout from hundreds of locations.
Rite Aid, the third-ranking pharmacy chain, trails CVS and Walgreens. It struggles under a staggering $3.3 billion debt and pending opioid-related lawsuit settlements. The looming threat of bankruptcy has stirred ongoing negotiations for Rite Aid to close 400 to 500 stores out of its 2,100. However, bondholders advocate shutting down even more. Despite generating $17.8 billion from its retail pharmacy segment last year, Rite Aid’s financial health remains precarious.
Queueing up behind Rite Aid, CVS Pharmacy has already announced plans to close 900 stores between 2022 and 2024. Having already pulled the plug on 300 outlets, the strategic review points to the grim reality the company finds itself in. Though CVS recorded $106.6 billion in revenues last year, CNBC analyst Neil Saunders comments on the gradual disrepair plaguing many of its stores. Poor lighting, drab interiors, cluttered merchandise, and inferior product range make CVS an out-of-necessity destination.
Walloping at the top, Walgreens isn’t immune to this wave of closures. It announced shutting down 150 locations in a bid to cut costs. Besides, Walgreens also reduced operating hours in about 1,100 stores. Despite generating $109.1 billion in sales last year, Walgreens isn’t immune to the strained economy. CEO Rosalind Brewer mentioned the reduced SNAP benefits, higher inflation, and interest rates, coupled with the uncertain economic outlook, are making it hard for their customers.
Although the reasons for store closures differ, their remedy seems to be precise—downsizing. Operating these retail pharmacies is proving to be costly for these companies. Insufficient differentiation and increased economic strain on consumers are forcing these giants to reconsider their approaches.
Store closures are a common occurrence for retailers, yet not all of them should worry consumers and investors alike. For pharmacy chains like Walgreens, though, it’s different. People depend daily on pharmacies for critical health needs, supposedly more immune to inflation. So, when such firms announce closings, the rest of the economy should pay attention.
Here’s the crux: traditional pharmacies are losing their appeal. Upscale beauty lines, greeting cards, and grocery items brought more competition, confusing their consumer base. Store diversification diluted their slogan as “health and wellness partners” and diverted attention to independent pharmacies. Indeed, the number of independent pharmacies grew 13% against a stagnant number of chain pharmacies.
Furthermore, pharmacy crimes and drugstore thefts taking a toll on the industry. Losses last year rose by 19% to $112.1 billion, causing pharmacies to lock high-demand goods behind glass cases. However, this translated into 15% to 25% loss in sales and deterred customers from shopping due to safety concerns.
Finally, the emergence of Amazon and other online retailers is further complicating the situation for conventional drugstores. Considering the ease and accessibility of online pharmacies, aggregation of consumer interests towards them is inevitable. It is forecasted that revenues for online pharmacies will grow at a CAGR of 19% from 2020 to 2026.
As the dust settles, the troubles of these pharmacy chains reflect a missed opportunity to embed better in customers’ hearts during the pandemic. Making quick trips and essential purchases turned into a daunting task, with store closures and concerns about safety during the COVID-19 pandemic. So while the likes of CVS, Walgreens, and Rite Aid race towards downsizing, it will be interesting to see who manages to swim against the tide and come out on top in this cutthroat environment.
