Walgreens has announced plans to close approximately 1,200 locations by 2027 as it faces increasing challenges from online competitors and falling prescription drug payments.
The drugstore chain revealed that the closures would begin immediately, with around 500 stores set to shut down over the next year.
This wave of closures marks a significant escalation in the company’s ongoing efforts to streamline its operations under CEO Tim Wentworth.
The closures come as Walgreens, one of the largest drugstore chains in the U.S., grapples with a combination of factors affecting its business model.
From reduced profitability in filling prescriptions to stiff competition from retail giants like Amazon, Walgreens is facing a turbulent time that has led the company to re-evaluate its store network and business strategies.
Financial Pressures and Strategic Restructuring
The decision to close 1,200 stores represents an extension of Walgreens’ optimization strategy, which began earlier this year when the company announced it would shut down 300 underperforming locations.
Walgreens had identified that about 25 percent of its stores were unprofitable, prompting “imminent changes” to improve its financial health.
While Walgreens posted a 6 percent revenue increase last quarter, it also reported a $3 billion loss.
This loss was primarily due to a significant writedown related to its investment in a Chinese pharmaceutical chain and a home care provider called CareCitrix.
According to Neil Saunders, retail analyst and managing director at GlobalData Retail, these store closures are a sign of a company working to “course correct” after years of expansion that neglected in-store fundamentals.
“Walgreens spent years building its business through acquisitions and neglected the fundamentals of its stores and its retail operations,” Saunders noted.
“That has pushed a lot of outlets into a position where they are losing sales and are not generating a return.”
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Challenges Facing the Drugstore Industry
Walgreens is not alone in facing a difficult environment. Competitors like CVS and Rite Aid are also struggling with similar issues, primarily due to declining prescription drug profits.
In recent years, these chains have seen lower reimbursement rates for prescriptions, a trend that has hurt profitability.
In addition, the entry of companies like Amazon into the pharmaceutical space has introduced new pressures and altered the competitive landscape for traditional drugstores.
The front-end of drugstores, selling everyday items like snacks and household goods, is also under intense pressure.
Large competitors like Target and Dollar General have captured market share in these areas, especially in rural locations where drugstores have historically been key players.
In response to consumer concerns over high prices, Walgreens slashed prices on more than 1,000 items in May to attract inflation-weary shoppers.
However, these adjustments have not fully offset the challenges facing the company’s prescription drug and retail operations.
CEO’s Vision for the Future
CEO Tim Wentworth expressed optimism about the long-term impact of the restructuring plan.
“The turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term,” Wentworth stated.
By reducing underperforming stores and refocusing on core operations, Walgreens aims to improve both its financial standing and customer experience.
However, Saunders sees these closures as a stark admission of previous failures in the company’s strategy.
Saunders commented.“Eliminating the dead wood will help the company strengthen its financials over time, but it is a huge admission of failure,”
The closures reflect Walgreens’ efforts to regain profitability and remain competitive in an industry that is increasingly moving online.
The Road Ahead for Walgreens
Walgreens’ plan to close one in seven of its stores over the next few years underscores the broader challenges facing the drugstore industry.
With major changes on the horizon, Walgreens will need to continue adapting to evolving market conditions, particularly as it navigates the rise of e-commerce and changing consumer preferences.
These store closures are part of Walgreens’ multi-year strategy to reduce costs and streamline its operations.
As the company sheds its unprofitable locations, it will focus on strengthening its online presence and improving the profitability of its remaining stores.
For Walgreens, these changes are an essential part of positioning the company for long-term success in an increasingly competitive retail environment.
Looking Forward: A Transformation in Progress
As Walgreens works to adapt to the digital age, its restructuring efforts signal a potential shift in how drugstore chains operate.
The company’s decision to streamline operations by closing underperforming stores could lead to a leaner, more efficient business model, ultimately shaping the future of the retail pharmacy industry.
