Jamie Spencer
Facing mounting pressure from online competition and declining earnings from prescription drugs, Walgreens, one of the largest U.S. drugstore chains, has announced plans to close approximately 1,200 stores over the next few years. This move will result in about one in seven of its locations shutting down, with 500 of those closures expected in the coming year.
The decision follows a prior announcement in June, when Walgreens outlined plans to close 300 underperforming stores as part of an effort to streamline operations. At that time, CEO Tim Wentworth emphasized the need for a significant overhaul, pointing out that around 25% of the company’s stores were struggling to turn a profit.
Financial Struggles and Market Competition
The expanded round of store closures comes as Walgreens faces serious financial headwinds. Despite posting a 6% rise in revenue in the last quarter compared to the previous year, the company also reported a $3 billion loss, primarily due to write-downs linked to a Chinese pharmaceutical business and a home care provider, CareCitrix.
Retail analyst Neil Saunders, managing director at GlobalData Retail, sees these closures as a sign of deeper issues. “Walgreens has focused heavily on expansion through acquisitions but neglected the basics of managing its stores and retail operations,” Saunders explained to CNN. “This has led many outlets to lose sales and become unprofitable.”
In the wake of the announcement, Walgreens’ shares (WBA) saw a temporary boost, rising nearly 4% in premarket trading. However, the stock has fallen by about 70% over the past year, reflecting broader challenges for the company.
Pressure Across the Drugstore Industry
Walgreens isn’t alone in its struggles. Other major drugstore chains like CVS and Rite Aid have faced similar difficulties, driven by lower reimbursement rates for prescription drugs and increased competition from digital players like Amazon. Amazon’s growing presence in the prescription drug market has disrupted traditional pharmacy models, as more consumers turn to online options for convenience.
CVS recently announced a plan to cut around 2,900 jobs as part of a broader effort to save $2 billion, adding to the 5,000 positions it eliminated last year. Drugstores have also seen increased competition from major retailers like Target and Dollar General, particularly in rural areas where these stores have expanded.
To adapt, Walgreens reduced prices on more than 1,000 products earlier this year, aiming to attract customers who felt the pinch of inflation.
Aiming for Long-Term Stability
Despite the challenges, CEO Tim Wentworth remains hopeful about the future. “Turning the company around won’t happen overnight, but we believe it will bring significant financial and customer benefits in the long run,” Wentworth stated.
While the move to close struggling stores could help stabilize Walgreens’ financial situation, Saunders suggests it underscores the chain’s broader struggles. “Cutting out unprofitable locations may improve the company’s bottom line, but it’s also a clear acknowledgment that previous strategies fell short,” he said.
