Walgreens Closures: The Decline of America's Drugstore Giants
Walgreens recently announced plans to close 1,200 stores over the next three years, a move that will significantly reshape its presence in the U.S. pharmacy landscape. This comes as part of a larger trend, with rival chains CVS and Rite-Aid also shuttering hundreds of locations. But why are these major drugstores struggling so much?
The answer lies in a combination of overexpansion, evolving consumer behavior, and shifting dynamics in the pharmacy industry. During the 1990s and 2000s, drugstore chains aggressively expanded, opening stores at rapid rates to outperform competitors and attract more customers. However, today, approximately 25% of Walgreens locations are unprofitable, with many stores being too close to one another or plagued by theft. Although shoplifting has increased since the pandemic, Walgreens has admitted that it may have exaggerated its impact.
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Additionally, drugstore chains like Walgreens are being squeezed by declining profits from their primary business—prescriptions. Pharmacies depend on reimbursement rates from companies known as pharmacy benefit managers (PBMs), which negotiate prices with drug manufacturers and insurers. However, these PBMs have reduced reimbursement rates, making it harder for pharmacies to turn a profit.
Meanwhile, the rise of online shopping, particularly from giants like Amazon, and the growing popularity of big-box stores such as Walmart and Costco, have hurt drugstores’ front-end sales. Items like snacks and household staples, once a reliable source of revenue, are now more frequently purchased elsewhere.
In an effort to diversify, Walgreens and CVS have attempted to branch into healthcare services by opening primary care clinics. However, Walgreens’ investment in VillageMD has not been as successful as hoped, and the company is now scaling back on that venture.
The store closures may help Walgreens stabilize its finances, but they could also limit access to healthcare for some communities, particularly in low-income areas. As America’s drugstores undergo this transformation, the impact on consumers and local economies will be closely watched.
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