Why Walgreens And CVS Are Shutting Down Thousands Of Stores

Summary

In June 2024, Walgreens announced plans to close 2150 stores by 2027 due to declining revenues and profits, reflecting broader industry challenges. The retail segment faces competition from dollar stores and big-box retailers, while the pharmacy segment contends with telehealth services and lower reimbursement rates from pharmacy benefit managers (PBMs). The closures could exacerbate 'pharmacy deserts,' impacting low-income urban areas. Potential solutions include FTC lawsuits against PBMs and state-level regulation to ensure equitable healthcare access.

Takeaways

• 💊 Walgreens announced plans to close approximately 2150 stores by 2027 due to financial struggles.
• 📉 The company's share price fell over 55% between January and July 2024, reflecting ongoing challenges.
• 🛒 The retail segment of Walgreens is experiencing a decline, with a 4% year-over-year drop in Q3 sales.
• 💸 High inflation and competition from cheaper alternatives like dollar stores and big box retailers are affecting sales.
• 🔒 Theft and shrinkage issues contribute to the decision to close certain high-theft locations.
• 💉 Pharmacy and health services are Walgreens' largest source of income, making up 76% of U.S. retail pharmacy revenue and 60% of total company revenue.
• 📉 The pharmacy business is declining due to telehealth services and lower reimbursement rates from pharmacy benefit managers (PBMs).
• 🏥 PBMs' control over drug prices and reimbursements creates misaligned incentives and pressures pharmacies financially.
• 🏢 The Federal Trade Commission plans to sue the three largest PBMs for allegedly driving up drug prices.
• 🌳 'Pharmacy deserts' are areas with low geographic access to pharmacies, affecting approximately 15.8 million Americans.
• 🏠 Closures of chain pharmacies could lead to a resurgence of independent pharmacies, especially in underserved areas.

Q & A

Why did Walgreens announce plans to close a significant number of stores in June 2024?

Walgreens announced plans to close stores because only 75% of their stores were effectively bringing in their revenues and profits, and the company was trying to stabilize its struggling financial situation.

What were the two main reasons cited by CEO Tim Wentworth for Walgreens' challenges in the Q3 report?

The two main reasons cited by CEO Tim Wentworth were pressure on the consumer and challenging trends in the pharmacy space.

How has the retail segment of Walgreens been performing?

The retail segment of Walgreens has been in a downward slide, with a 4% year-over-year decline in Q3, continuing a trend of poor performance over recent years.

What is the impact of inflation on chain pharmacies like Walgreens?

Inflation is squeezing customers, making it difficult for chain pharmacies to compete with cheaper alternatives like dollar stores and big box retailers.

What is the role of Pharmacy Benefit Managers (PBMs) in the pharmacy industry, and how do they affect pharmacies like Walgreens?

PBMs act as intermediaries between insurance and pharmacies, negotiating drug prices, determining coverage, and setting reimbursement rates. They have been shrinking reimbursement rates and pushing patients towards generic brands, which makes it harder for pharmacies to make money.

What is the significance of the FTC's plan to sue the nation's three largest PBMs, and how could it potentially benefit pharmacies?

The FTC's plan to sue the largest PBMs could potentially shine a light on their practices and lead to changes that might lessen the impact of pharmacy closures by addressing issues like drug pricing and reimbursement rates.

What is a 'pharmacy desert' and how does it affect communities?

A 'pharmacy desert' is a place with low geographic access to pharmacies, which can be detrimental to communities, especially in areas where access is already an issue, leading to inequities in the distribution of pharmacy services.

How do pharmacy closures impact the customers and pharmacists?

Pharmacy closures impact customers by potentially reducing access to healthcare services and forcing them to travel farther for prescriptions. It also impacts pharmacists and staff by increasing their workload as they have to handle more customers from closed locations.

What is Walgreens' strategy to address the challenges it faces?

Walgreens is focusing on areas like health and beauty, women's health, and potentially renegotiating with PBMs for better reimbursement rates. They are also considering the impact of closures on communities and aiming to ensure a smooth transition for customers and team members.

What is the role of independent pharmacies in the current pharmacy landscape, and how do they compare to chain pharmacies?

Independent pharmacies are seen as a potential solution in areas where chain pharmacies are closing, as they are more likely to open in underserved neighborhoods and rural areas. They offer an alternative to chain pharmacies and can provide personalized services.