Many of the largest drugstore retailers and pharmacies in the nation have been grappling with significant challenges in recent years. The evolving marketplace has presented a formidable obstacle, leaving many of these businesses on the brink of extinction. Walgreens and CVS, two of the biggest names in the industry, appear to be facing particularly daunting hurdles as consumer preferences shift away from traditional drugstores. Walgreens Boots Alliance, in particular, has been reevaluating its operations and has announced that it is scrutinizing over 2,000 of its locations to decide their future. This review will determine whether these stores will continue to operate or be closed permanently.
Strategic Responses to a Shifting Marketplace
“The severity and duration of the challenges in the operating environment have only added urgency to our strategic and operational review, and we are addressing them directly,” said Walgreens CEO Tim Wentworth, commenting on the company’s drastic restructuring plan. Wentworth’s remarks underscore the critical nature of the situation. He added, “We are at a point where the current pharmacy model is not sustainable, and the challenges in our operating environment require that we approach the market differently.”
The urgency in Walgreens’ response reflects broader industry trends. Drugstore giant Rite Aid, a major competitor, filed for bankruptcy protection just last year. The fallout from Rite Aid’s bankruptcy has been severe, resulting in the closure of hundreds of locations. Now, Walgreens is facing similar pressures, and the possibility of it following a similar path looms large.
Neil Saunders, managing director at GlobalData, offered insight into Walgreens’ predicament. He noted, “They used to be a key destination for convenient purchases of things like snacks and household essentials. This position has been undermined by the expansion of dollar chains and fast-delivery e-commerce.” Saunders’ analysis highlights a fundamental shift in consumer behavior, with more shoppers turning to alternative retail models that offer lower prices and greater convenience.
Declining Drugstore Presence
The impact of these market changes is evident when examining industry statistics. According to RetailStat, an analysis of fifteen major pharmacy chains reveals a dramatic decrease in the number of operational drugstores. At the beginning of this year, there were over 3,000 fewer drugstores in business compared to five years ago. This significant decline underscores the severity of the challenges facing the industry.
In response to these challenges, Walgreens’ Retail and Chief Customer Officer Tracey Brown detailed the company’s approach during an earnings call. “Walgreens would be taking a multifaceted, disciplined way of looking at where to close,” Brown explained. She acknowledged that shrinkage, or loss of inventory, is an issue in some stores, but emphasized that consumer behavior and trends are also crucial factors in the decision-making process. “We have our eyes on our high-shrink stores all the time,” Brown said. She added that Walgreens is evaluating its locations based on market growth and decline, aiming to align store closures with these market dynamics.
Financial Implications and Market Position
This review process will affect approximately one-quarter of Walgreens’ 8,600 locations across the United States. Walgreens executives have noted that only about 75% of these locations contribute to the company’s adjusted operating income, which has dropped over 35% this year. This substantial decline in income underscores the financial strain the company is under.
Edward Jones analyst John Boylan commented on the situation, noting, “It is difficult to discern how these potential changes may impact the company’s financial prospects over the next few years as we await more details. Having said that, we believe Walgreens is doing the right things, but it will take time for its strategy to unfold, and in the meantime, the company faces a tentative and changing consumer.”
Neil Saunders further elaborated on the broader industry challenges. He pointed out, “Prices in drugstores are not particularly competitive, and in the current environment, that’s pushing more shoppers to cheaper alternatives like mass merchants. Drugstores do themselves no favors with poor selling environments that include uninspiring and depressing interiors, locking up products, and poor customer service. Unless drugstores address these issues by creating more compelling retail propositions, they will continue to lose market share.”
In conclusion, the drugstore industry is undergoing a significant transformation as traditional players like Walgreens and CVS struggle to adapt to new market conditions. With shifting consumer preferences and increasing competition from alternative retail models, the future of these established chains remains uncertain.
