New York
CNN
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Walgreens said Thursday it plans to close a “significant” number of its roughly 8,600 stores in the United States. About 25% of Walgreens stores are unprofitable, and the chain will look to close stores that are right next to each other or that are struggling to keep theft under control, CEO Tim Wentworth said in an interview with the Wall Street Journal.
Walgreens and other retailers have been hit by shoplifting and have resorted to stockpiling or closing high-theft stores since the pandemic, but Walgreens’ problems run much deeper, including competition and failed marketing strategies. growth. Walgreens admitted last year that it “cried a lot” over the business impact of shoplifting.
The latest closings are part of a larger decline not only for Walgreens, but other drugstore chains as well, after years of expansion. Walgreens said in 2019 it would close 200 stores and last year announced the closing of an additional 150 stores.
“We’re at a point where the current pharmacy model is not sustainable,” Wentworth said.
CVS, the largest chain in the US, closed 244 stores between 2018 and 2020. In 2021, it announced plans to close 900 stores. And Rite Aid filed for bankruptcy last year and will close up to 500 stores.
Chain drugstores are struggling because of declining prescription drug reimbursement rates, according to analysts who cover the industry.
Most pharmacy sales come from filling prescriptions. But their profits from that business have declined in recent years due to lower reimbursement rates for prescription drugs and higher fees.
The prices customers pay for drugs and the payments pharmacies receive are largely determined by pharmacy benefit managers, known as PBMs, who negotiate rebates from drug manufacturers to insurers. PBMs have been cutting reimbursement rates to boost their profits, said Elizabeth Anderson, an analyst at Evercore IRI.
The pharmacy industry has complained that PBMs have too much control over the industry and can squeeze pharmacies. PBMs argue that they help lower drug prices by negotiating with drug manufacturers.
“If reimbursement rates start to decrease and drug stores can’t make up for it with other increases, then that has a negative impact on their profitability,” she said.
At the same time, the rest of the store that’s supposed to supplement profit margins isn’t doing so much anymore.
The storefronts of drugstores, where they sell convenience foods and household products, have become less profitable as shoppers buy more of these items online from Amazon and at big chains like Walmart and Costco. Both have grown in recent years. Dollar General’s growth has also hurt drugstore chains in rural areas.
“The front end is suffering like other retailers,” Anderson said.
Walgreens, CVS and other drug stores have moved into primary care to try to lure shoppers, adding doctor’s offices to hundreds of stores. Walgreens took a $5.2 billion stake in VillageMD, a primary care network, in 2021.
But VillageMD has not been profitable for Walgreens, and Walgreens has been trying to cut costs. She has closed VillageMD locations and said Thursday that she is leaving the company.
Walgreens’ upcoming closings may help the company’s bottom line, but will likely hurt access to health care.
When pharmacies are closed, some patients have to travel farther to get the medications they need. Researchers find that closing pharmacies leads to health risks, such as the elderly who do not take medication.
The loss of a retail pharmacy can leave a void, especially for lower-income families.
Roughly one in eight pharmacies closed between 2009 and 2015, which disproportionately affected independent pharmacies and low-income neighborhoods, according to a study published in the Journal of the American Medical Association.
The study found that pharmacies at greatest risk of closing are those with a large customer base on public insurance, which have lower reimbursement rates than private plans, as well as independent pharmacies.