Walgreens, a prominent drug store chain, has announced plans to close approximately 1,200 locations as it grapples with challenges posed by online competitors and declining prescription drug payments. This decision will result in about one in seven Walgreens stores shutting down by 2027, with 500 closures expected within the next year.
The move to close these stores marks a significant increase from the initial plan to shut down 300 underperforming locations as part of a broader optimization program initiated by CEO Tim Wentworth. The company had previously disclosed that a quarter of its stores were unprofitable, prompting the need for strategic changes.
Despite facing financial difficulties, Walgreens managed to exceed sales expectations in the last quarter, with a 6% increase in revenue compared to the previous year. However, the company reported a $3 billion loss primarily due to writedowns related to a Chinese pharmaceutical chain and a home care provider named CareCitrix.
Following the announcement of store closures, Walgreens' stock experienced a nearly 4% rise in premarket trading. Nevertheless, the stock has seen a significant decline of almost 70% over the course of the year.
The decision to close stores comes at a challenging time for drugstore chains in general, as they face multiple pressures. Major players like CVS and Rite Aid have been struggling due to diminishing profits from prescription drug sales, attributed to lower reimbursement rates and increased competition from online giants like Amazon.
In response to the tough market conditions, CVS recently revealed plans to cut around 2,900 jobs as part of a cost-saving initiative. This move follows a previous round of 5,000 job cuts announced last year.
Furthermore, drugstores are also feeling the heat from larger retail competitors such as Target and Dollar General, particularly in the sale of non-pharmacy items like snacks and household essentials. To attract customers back, Walgreens and its rivals have resorted to price reductions on a wide range of products.
CEO Wentworth expressed confidence in the company's ability to navigate these challenges, stating that while the turnaround process will take time, it is expected to deliver substantial financial and consumer benefits in the long run.
