CVS is closing 900 stores. Rite-Aid is closing 500. Walgreens announced Tuesday it plans to close 1,200 stores, meaning 1 in 7 will disappear.
What is going on with America’s drug stores?
Walgreens and other chains overexpanded during the 1990s and 2000s to drive out competitors and draw more customers.
They are now shutting down because of shifting consumer habits, competition and changes in the pharmacy industry.
Around 25% of Walgreens’ stores aren’t profitable, CEO Tim Wentworth said in an interview with the Wall Street Journal in June.
The chain will look to close stores that are right by one another or struggling to hold down theft.
But shoplifting alone doesn’t explain Walgreens’ problems, and the company subsequently admitted last year it “cried too much” over the impact of the would-be scourge.
Meanwhile, increased competition and failed growth strategies, like acquiring primary care providers, continue to have reverberating impacts on drug stores.
“We are at a point where the current pharmacy model is not sustainable,” Wentworth said in June.
CVS, the largest US chain, closed 244 stores between 2018 and 2020. In 2021, it announced plans to close an additional 900 stores.
Earlier this month, CVS said it planned to cut about 2,900 jobs corporate jobs.
And Rite Aid filed for bankruptcy last year, closing up to 500 stores.
Shifting trends
Drug store chains are struggling because of lower reimbursement rates for prescription drugs, according to analysts who cover the industry.
The majority of drugstores’ sales comes from filling prescriptions.
But their profits from that business have dropped in recent years as reimbursement rates for prescription drugs fall while fees rise.
The prices customers pay for drugs and the payments pharmacies receive are largely determined by companies known as pharmacy benefit managers, or PBMs, which negotiate rebates from drug manufacturers to insurers.
PBMs have been cutting reimbursement rates to boost their own profits, Elizabeth Anderson, an analyst at Evercore IRI, previously told CNN.
The pharmacy industry has complained that PBMs have too much control and can squeeze pharmacies.
PBMs argue that they help keep drug prices down by negotiating with drug makers.
“If reimbursement rates start to come down and drug stores can’t offset it with other growth, then it has a negative impact on their profitability,” Anderson said.
At the same time, the rest of the store is struggling.
The front end of drug stores, which sells snacks and household staples, have become less profitable as shoppers buy more of these items online from Amazon and at big-box chains such as Walmart and Costco.
