Walgreens intends to eliminate roughly 1,200 of its U.S. retail pharmacies because the healthcare system is changing, profitability are going down, and big-box stores and internet businesses are becoming more competitive. The layoffs will effect more than 14% of the company’s U.S. operations, and they will happen over the next three years in stages. Around 500 businesses will close in the following year.
The company’s announcement on Tuesday is a big step forward from its ambitions to make changes. In June, Walgreens stated it will close 300 stores that weren’t doing well. The CEO, Tim Wentworth, guided the corporation through a “optimization strategy” that lasted for several years and included that choice. When he became CEO in 2023, the major drug company was under a lot of pressure to do better.
At the time, executives from Wentworth and Walgreens said that around a quarter of the company’s stores were not doing well or were losing money. People assumed the prior closures were planned and limited in scope, but the new information shows that internal studies have uncovered bigger flaws that need more extreme measures to fix the business.
This shows that the retail pharmacy industry is encountering bigger problems. In the past few years, Walgreens, CVS, and Rite Aid have all had a lot of problems. These include decreased profit margins on prescription drugs, greater operating costs, fewer customers coming into stores, and more competition from tech companies like Amazon.
Pharmacy chains are having a hard time with their main business, which is selling prescription pharmaceuticals, because pharmacy benefit managers (PBMs) and insurance companies are paying them less for such drugs. These middlemen help companies and insurance companies find the cheapest prices. This could mean that pharmacies have to fill prescriptions with very little profit or perhaps lose money.
Amazon’s purchase of PillPack and its foray into the pharmacy business with services like Amazon Pharmacy have made it possible for customers to not have to go to a store at all. Amazon is stealing business from stores that used to sell everything by offering fast shipping, transparent prices, and easy online buying.
Walgreens has had some short-term successes, but its finances are still bad. The most recent quarterly reports from the corporation showed that sales were better than projected, with a 6% increase over the same quarter last year. The bad news, though, was that the corporation lost $3 billion in the last quarter. The company lost a lot of money since it had to sell its investment in a Chinese pharmacy company and its ownership of CareCentrix, a company that aids people with home health care. People used to think that these costs were part of Walgreens’ long-term goal to grow, but now they are just a drag on the company’s finances.
Even though the company’s profitability were bad, investors were cautiously hopeful when they heard it was closing. After the news, Walgreens’ stock rose by more than 4% in premarket trade. Some people on Wall Street believe that the layoffs are necessary and long overdue steps to save money and improve operations. The company’s stock price has dropped by over 70% since the start of the year. This means that customers still don’t know if Walgreens can stay competitive and generate money in a retail world that is changing.
Tim Wentworth, the CEO, has remarked several times that Walgreens needs to “modernize and optimize” its business, not just by opening more stores but also by treating customers and patients better. This includes spending money on digital infrastructure, making inventory more efficient, improving service in the stores that are still open, and focusing more on providing healthcare through in-store clinics and partnerships with primary care doctors.
But the future is uncertain, especially since Walgreens’ rivals are also making big changes. For example, CVS just said it would fire 2,900 people to save $2 billion. It is also closing hundreds of stores and putting more money into health care. Rite Aid is also letting people go because it doesn’t have enough money, just like other businesses that have gone bankrupt and closed their doors.
Walgreens’ closings will affect the business and the thousands of workers and communities that rely on these locations for basic needs and medicines. In many regions, especially in rural or low-income metropolitan areas, Walgreens is one of the only pharmacies. For folks who can’t get to a doctor, it’s a lifeline. People who don’t want the stores to close are worried about “pharmacy deserts” and how the closures would hurt people who are already weak, such seniors and families with limited incomes.
Walgreens will shut down locations that aren’t making enough money or that don’t have enough customers. The company hasn’t stated which stores would be closing yet, but it has promised to let the people and communities that will be affected know about each closure ahead of time.
In May, Walgreens dropped the prices of more than 1,000 everyday items to get customers to come back and compete on pricing. They thought this would bring in more shoppers who care about price. People assumed the choice was made because prices were going up and dollar stores and big-box retailers like Target and Walmart were getting more business, which was hurting sales of health items, snacks, and household goods.
The pharmacy business is going through a big change that is only starting to unfold. Walgreens may have to close some shops, which would be bad for the company, but it might be what it needs to do to become more flexible and efficient. To stay in business, the company needs to use new technologies, offer health care services, and put more emphasis on the customer experience.
We don’t know how well this transition will work yet, but one thing is clear: pharmacies are changing right now, and the choices that companies like Walgreens make now will determine whether they continue in business or go out of business in the future.