Shifting Trends Negatively Impact Drugstores

“We are at a point where the current pharmacy model is not sustainable,” said Walgreens CEO Tim Wentworth in an interview with The Wall Street Journal. The drugstore chain recently revealed plans to close an undisclosed “significant” number of stores around the U.S.

Roughly 25 percent of the retailers’ stores are not profitable, and the store closures will focus on stores close to each other, or those that have high incidences of theft, said Wentworth.

CNN Business noted how Walgreens’ recent closures are part of a larger shift away from pharmacies: CVS closed 244 stores between 2018 and 2020 and, in 2021, planned to close another 900 over the next few years; additionally, Rite Aid filed for bankruptcy last year and expects to close up to 500 stores, according to the report.

Drugstore chains are largely struggling because of a decline in reimbursement rates for prescription drugs—which account for the majority of the retail segment’s sales.

The prices customers pay for drugs and the payments pharmacies receive are partly determined by pharmacy benefit managers that negotiate rebates. Elizabeth Anderson, an analyst at Evercore data insights firm IRI said these managers have been cutting reimbursement rates to boost their profits.

“If reimbursement rates start to come down and drugstores can’t offset it with other growth, then it has a negative impact on their profitability,” she said.

Moreover, the CPG section of drugstores has become less profitable as shoppers buy more items online, according to the report. Dollar store growth has also hurt these retailers, particularly in rural areas.

“The [pharmacy] front end is suffering like other retailers,” said Anderson. Full Story