Walgreens Boots Alliance will close a significant portion of its roughly 8,600 U.S. stores as the drugstore chain seeks to turn around its struggling business, which has been hit by inflation-weary customers gauging their spending.
“The current pharmacy model is not sustainable,” CEO Tim Wentworth told investors on a Thursday earnings call.
With 75% of the company’s U.S. stores accounting for 100% of its adjusted operating income, the company plans to examine the remaining 25% of its stores for closures, which will occur over the next three years, the executive said. , which took the wheel company in 2023. Closing 25% of its 8,600 U.S. locations would result in the closing of about 2,150 stores.
“Changes are inevitable,” but some of the specifics are still fluid, Wentworth said of the impending closings. “There is no exact number” of closures.
Wentworth added that the company will definitely close some underperforming storesbut that other locations may shift to profitability.
Inflation has affected Walgreens’ business, with consumers “increasingly selective and price-sensitive in their choices,” according to Wentworth. But analysts said the chain’s problems are also its own.
“Walgreens does itself no favors in this environment by having a weak proposition and largely uncompetitive pricing compared to mass marketers,” Neil Saunders, managing director of GlobalData, said in an emailed research note. “It’s not good to run selective promotions, which the chain did last quarter, there needs to be a more fundamental review of the retail offer.”
Walgreens last month cut prices on 1,300 products, following Target and other retailers in lowering prices as the U.S. economy shows signs of slowing.
Oklahoma Walgreens locations closing
- 9011 S Pennsylvania Ave, Oklahoma City
- 6000 S Pennsylvania Ave, Oklahoma City
- 4400 NW 23rd St, Oklahoma City
- 6505 E 71st St, Tulsa
Are layoffs planned?
The company does not anticipate large-scale layoffs at the store closings, as it believes most employees at those locations would be transferred to other Walgreens stores, Wentworth said.
“You don’t need to have the number of stores we have today,” he said, adding that Walgreens expects to keep most of its subscription fulfillment business from the yet-to-be-closed locations.
“Reducing capacity is not a bad thing, from a payer’s point of view,” Wentworth said. “We can serve payers very effectively from the footprint that remains.”
The call with analysts came after Walgreens cut its guidance and reported worse-than-expected third-quarter earnings that drew a negative reception on Wall Street, with Walgreens shares falling $3.67, or 23%, on 11, $99 each, on Thursday morning trading.
Pharmacy problems
Walgreens isn’t the only one struggling to grow its U.S. retail pharmacy business.
In October, Rite Aid said it planned to close 154 stores nationwide as part of the bankruptcy filing, which came amid declining sales and a surge in opioid-related lawsuits.
Pharmacies — both independent locations and retail chains — are closing across the country amid low reimbursement rates for pharmacy care and low dispensing fees for Medicaid enrollees.
Further, as Medicaid enrollment surged during the pandemic, an estimated 18 to 20 million people have since been dropped from the program, with some of those patients unable to obtain other coverage, another loss for the pharmacy industry at large. remarked Wentworth.
Walgreens and other pharmacies often lose money selling brand-name drugs because of agreements with pharmacy benefit managers, or PBMs. These groups, which serve as intermediaries between health plans and drug manufacturers, negotiate prices with drug companies and set reimbursement rates for pharmacies.
“The playbook is a little out of date; we’re working with the PBM partners to make those changes,” Wentworth said.
Meanwhile, some pharmacies are also grappling with labor issues, with pharmacists at Walgreens and CVS Health walking off the job last year to protest longer hours and understaffing.