Walgreens, one of the largest pharmacy chains in the United States, has announced the closure of approximately 1,200 of its stores as part of an effort to face increasing competition from online platforms and declining prescription drug payments. This move is part of a broader restructuring plan aimed at improving the company’s profitability.
Store closures: A survival strategy
According to the company’s announcement, around 500 stores will close their doors within the next year, and by 2027, one in seven Walgreens stores will cease operations. This decision marks an acceleration compared to measures announced earlier in June, when the chain indicated it would close 300 stores as part of a multi-year optimization program. At that time, Walgreens revealed that a quarter of its stores were not profitable, prompting them to take drastic actions to restructure their operations.
Walgreens CEO Tim Wentworth noted that, although the company recorded a 6% increase in revenue in the last quarter, it continues to face significant financial challenges, including a $3 billion loss. This deficit is largely attributed to asset devaluation in China and issues with home healthcare providers such as CareCitrix.
A sector in crisis: Why is Walgreens closing stores?
Pharmacy chains, including Walgreens, CVS, and Rite Aid, have been facing tough times due to shrinking profit margins from the sale of prescription drugs. This decline has been exacerbated by growing competition from online platforms like Amazon, which have captured a significant share of the market. Walgreens has attempted to adapt to this situation, but high operational costs and increasing competition have led many of its stores to become unprofitable.
Additionally, competition in the sale of everyday products, such as food and household essentials, has also impacted these chains. Major retailers like Target and Dollar General are attracting more consumers, especially in rural areas, making it even harder for Walgreens to stay competitive.
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An attempt at optimization
The store closures are part of a broader “footprint optimization” strategy aimed at reorienting Walgreens as a pharmacy chain focused on its core business: selling medications and specialized services. This move seeks to eliminate less profitable locations and concentrate on areas where the company can have a greater financial impact. Neil Saunders, a retail analyst at GlobalData, has indicated that these closures are a clear sign that the company is in trouble, but this adjustment is necessary for its long-term survival.
A glimmer of hope amid the storm
Despite the financial difficulties, the closure announcement has been well-received by investors. Walgreens (WBA) shares rose by nearly 4% in pre-market trading, although they still show a 70% decline so far this year. This suggests that investors believe the reduction in stores could be the first step toward a long-term recovery.
Tim Wentworth himself acknowledged during a call with shareholders that the company still has much work ahead. However, he also stated that they have already managed to reduce net debt by $1.9 billion and expect that the adjustments made so far will result in significant financial improvements for Walgreens.
The future of Walgreens
The company has also indicated that further workforce cuts are not expected, although the reduction in the number of stores will undoubtedly affect employees at the closed locations. In addition, Walgreens plans to continue focusing on its core business lines, such as pharmacies and specialized services.
For fiscal year 2025, the company aims to stabilize its core economics, which includes optimizing operating costs and improving cash flow. According to Wentworth, this restructuring process will take time, but he is confident that, in the long term, the benefits will be significant for both consumers and the company’s financial health.
What does this mean for consumers?
For Walgreens customers, the closure of 1,200 stores may mean changes in their access to the chain’s locations. However, the company is betting on improving the customer experience in the stores that remain open, focusing on offering better health services and greater convenience. At the same time, consumers are likely to notice a stronger emphasis on online sales and home delivery of medications, sectors Walgreens has strengthened in response to digital competition.
In short, the store closures represent a crucial effort for Walgreens to remain competitive in a rapidly evolving market, but the key question is whether these changes will be enough to ensure its long-term survival.
