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Walgreens closing numerous stores amid 'challenging' retail environment

From March through May 2024, Walgreens reported a 48% drop in operating income compared to the same period in 2023.
Walgreens-Clinic Challenges
Posted at 8:44 AM, Jun 27, 2024

Walgreens, one of America's largest pharmacy chains, announced early Thursday plans to close numerous stores across the U.S. as it embarks on a "significant multiyear footprint optimization program to close certain underperforming" locations.

The company did not say exactly how many of its nearly 8,600 locations it plans to close, but company CEO Tim Wentworth told investors on Thursday that 25% of the chain's footprint is considered "underperforming." He said these underperforming stores would close over the next three years as leases expire.

Walgreens also adjusted its earnings expectations for the rest of 2024 amid "challenging pharmacy industry trends and a worse-than-expected U.S. consumer environment."

"We continue to face a difficult operating environment, including persistent pressures on the U.S. consumer and the impact of recent marketplace dynamics which have eroded pharmacy margins. Our results and outlook reflect these headwinds, despite solid performance in both our International and U.S. Healthcare segments," said Wentworth. "Informed by our strategic review, we are focused on improving our core business: retail pharmacy, which is central to the future of healthcare. We are addressing critical issues with urgency and working to unlock opportunities for growth. Many of these actions will take time, but I am confident that we have the right team and the right strategy to lead a business turnaround for the Walgreens that our customers and patients need.”

Margaret Sheehan, a spokeswoman for Walgreens, told WPTV that "approximately 25% of Walgreens stores are not contributing to our long-term strategy."

Here is the entire written statement sent to WPTV:

"Approximately 25% of Walgreens stores are not contributing to our long-term strategy. We’re finalizing an optimization program that we expect will include closing a significant portion of these locations over the next three years. We are also taking a series of actions and making investments to enhance the customer and patient experience."

Related story: Hooters closing 'underperforming' locations across multiple states

Pierre Debbas is a commercial real estate and business expert, and a partner and founding member of the Romer Debbas law firm. He said "no business is exempt from the impacts of the current economy."

Debbas said that between inflation impacting consumer spending and the ability to buy just about anything online, the closures are a sign of the times.

"The need for somebody to go to a pharmacy to pick up something has declined substantially. It's a big reason why you are seeing Walgreens have to shed so much real estate in the coming years," Debbas said. "Inflation has impacted everybody top down, and you are seeing consumers aren't spending as much as they used to, especially in the retail world. And it's really hurting retail real estate. Now in the age of Amazon and everybody buying everything online, that's declined substantially. That demand (to shop in a pharmacy). And on top of that, a lot of pharmaceutical companies have gone virtual and they ship you your medication now."

Debbas said consumers will adjust to the closures, making the most cost effective decisions they can, given the state of the economy.

For the three months ending May 31, Walgreens reported a 48% drop in operating income in the U.S. compared to the same timeframe in 2023. In the nine months leading to May 31, Walgreens had a 38% decline in operating income, compared to a year earlier.

Walgreens blamed the drop in income on "lower sale and leaseback gains, a challenging retail environment and reimbursement pressure, net of procurement savings, partly offset by cost savings initiatives."

Wentworth told investors that it intends to "redeploy the vast majority of the workforce" in the stores it closes.

Wentworth said that he is aware that in many communities, Walgreens might be the only pharmacy in the area. He suggested that Walgreens would avoid closures in those areas.

"We are the only thing standing between those places and being pharmacy deserts," he said. "And our goal is not simply to be the last one to leave. Our goal is to actually find new ways to work together, whether it's a state Medicaid program, whether it is local law enforcement and so forth for them to do their jobs so that we can do our jobs and continue to provide care in those communities."

Walgreens' top competitor CVS said in May that operating income from its stores was down 34% in the first three months of 2024 compared to 2023.

The announcement comes as large Midwest pharmacy chain Rite Aid announced it was closing locations in Ohio and Michigan while shuttering operations at a Michigan-based distribution center.