Walgreens Closing Stores: A Sign of Changing Times in the Retail Pharmacy Space

Walgreens, a well-known pharmacy chain, recently disclosed plans to shut down a significant number of its 8,600 stores in the U.S. The decision came as a result of only 75% of the stores being profitable, leaving the remaining one-quarter facing closure by 2027. This move reflects a broader trend of struggles within the retail pharmacy industry, with CVS also closing stores and Rite Aid declaring bankruptcy.

According to Neil Saunders, GlobalData retail managing director, the traditional role of pharmacies as community hubs has diminished over the years. While pharmacies were once go-to destinations for prescriptions and general goods, consumer preferences have shifted. The decline in foot traffic and sales points to a changing landscape where pharmacies are no longer the central shopping locations they used to be.

Walgreens is not immune to its set of internal challenges. The front-of-store retail business continues to experience declines, with a 4% year-over-year decrease in the fiscal third quarter. Saunders pointed out that the merchandise and beauty products offered at Walgreens are not competitive, with uninteresting brands and higher prices compared to other retailers.

While pharmacy revenue makes up a significant portion of Walgreens’ sales, the back-of-store operations are crucial in offsetting the weaknesses in the retail segment. However, the pharmacy sector is facing its own challenges, including shrinking margins due to declining reimbursement rates from pharmacy benefit managers (PBMs). With pharmacy benefit manager reimbursement on the decline, Walgreens is left grappling with financial headwinds that impact its bottom line.

Walgreens’ decision to close stores is a testament to the changing dynamics in the retail pharmacy space. With shifts in consumer behavior, challenges in the front-of-store retail business, and pressures on pharmacy revenue, pharmacy chains like Walgreens are forced to adapt to survive in a competitive market. It remains to be seen how Walgreens will navigate these challenges and emerge stronger in the evolving retail landscape.