Store Closures
Walgreens will close a significant number of US stores
“We are at a point where the current pharmacy model is not sustainable"
June 27, 2024 — Walgreens Boots Alliance, one of the largest pharmacy chains in the United States, has announced plans to close a significant number of its stores across the country. This decision is part of a broader strategy to optimize its operations and address ongoing financial challenges. The closures will primarily target underperforming locations, those in close proximity to each other, and stores facing high levels of theft.
Strategic Shift and Financial Pressures
The announcement comes as Walgreens grapples with a challenging retail environment and declining profits. CEO Tim Wentworth, who took the helm last October, has been tasked with steering the company through these turbulent times. In an interview with The Wall Street Journal, Wentworth revealed that approximately 25% of Walgreens' 8,600 U.S. stores are not meeting performance expectations and are under review for potential closure.
The financial strain on Walgreens is evident in its recent earnings report. The company reported a 2.6% increase in sales to $36.4 billion for the quarter, but this growth fell short of inflation rates, indicating a loss of market share in certain segments. Retail sales declined by 4%, a drop attributed to reduced consumer spending and competition from larger retailers like Target and dollar stores.
Impact on Stock and Profit Forecast
Following the announcement, Walgreens' shares plummeted nearly 17% in premarket trading. The company also revised its full-year profit forecast downward, now anticipating adjusted earnings in the range of $2.00 to $2.95 per share, a significant drop from the previous forecast of $3.20 to $3.50 per share. This revision reflects the ongoing pressures on pharmacy margins and the broader economic challenges facing U.S. consumers.
Operational Challenges and Industry Trends
The retail pharmacy industry has been facing numerous challenges, including reduced reimbursement rates for prescription drugs and increased competition from e-commerce giants like Amazon. Additionally, the decline in COVID-19 vaccine distribution has led to fewer customers visiting stores, further impacting prescription volumes.
Walgreens' venture into GLP-1 drugs for weight loss and diabetes treatment, including Ozempic and Mounjaro, has not yielded the expected results, with the company incurring losses on these prescriptions. The company's attempt to diversify its business model by investing in VillageMD, a primary care network, also faced setbacks, resulting in a substantial write-down on its balance sheet.
Future Plans and Workforce Impact
Despite these challenges, Walgreens remains committed to enhancing its core retail pharmacy operations. The company plans to implement a "retail pharmacy action plan" aimed at improving the customer and patient experience through enhanced service channels. Efforts will be made to redeploy staff members from closed stores to mitigate job losses.
In a statement to USA TODAY, Walgreens emphasized its focus on repositioning its store footprint for the future. "We are finalizing an optimization program, including the closure of a substantial number of these locations over the next three years," the statement read. "Concurrently, we are implementing measures and investments to elevate the customer and patient experience."
Industry-Wide Challenges
Walgreens is not alone in facing these challenges. CVS, another major pharmacy chain, has closed approximately 900 locations in recent years, while Rite Aid has shuttered over 100 stores amid bankruptcy proceedings. The retail pharmacy sector is undergoing significant transformation as companies adapt to changing consumer behaviors and economic conditions.
Conclusion
Walgreens' decision to close a significant number of its U.S. stores marks a pivotal moment for the company as it seeks to navigate a complex and evolving retail landscape. The closures are part of a broader strategy to optimize operations, reduce costs, and enhance the customer experience. As the company moves forward, it will need to balance these efforts with the need to maintain its workforce and continue serving its communities effectively.