Walgreens has officially announced that they plan to close over 1,200 stores in the next three years as the struggling drugstore seeks to turn around its shrinking business.
The company announced Tuesday that around 500 stores will be closing the current fiscal year which should immediately help the struggling pharmaceutical chain and free up some cash flow.
Walgreens Boots Alliance Inc. leaders said in late June that they were finalizing a turnaround plan for its U.S. business, and that push could result in the closing of hundreds of underperforming stores. Like many of its competitors, Walgreens has been struggling for years with tight reimbursement for the prescriptions it sells as well as other challenges like rising costs to operate its stores.
The Illinois-based company has also been backing away from a plan to add primary care clinics next to some of its stores after launching an aggressive expansion under previous CEO Rosalind Brewer. The company announced in August that it was reviewing its U.S. healthcare business, and it might sell all or part of its VillageMD clinic business. The announcement of the review came two years after the brand stated that it would be spending billions of dollars to expand the business.
Walgreens reportedly started 2024 by cutting the dividend it pays shareholders to get more cash to grow its business. The drugstore chain then slashed its forecast for fiscal 2024 in June. It was reported that after the announcement Walgreens shares jumped Tuesday in early-morning trading. The stock had shed nearly two-thirds of their value so far this year, falling to $9 as of Monday's close.
The shocking announcement comes after the company stated in July that they were planning "significant" shutdowns of underperforming outlets nationwide. CEO Tim Wentworth told the Wall Street Journal that the store closures would constitute a "meaningful percent" of the roughly one-fourth of locations that are underperforming.
"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," Wentworth said. "Our results and outlook reflect these headwinds."
Despite sales jumping 2.6% during the quarter, Neil Saunders, managing director of GlobalData, stated that while this might not "look unreasonable, but this is running below inflation and, across some segments of the business, represents a loss of market share.”
Walgreens has been hit hard with a 4% drop in retail sales for the quarter. This is largely due to the ongoing cost-of-living crisis that has many customers buying fewer products and being more savvy when it comes to shopping for deals, Saunders stated. In May, the company attempted to lure customers back into stores by slashing prices on over 1,000 items .
Major pharmacy chains such as CVS and Rite Aid have also faced challenges due to falling profits from prescription services. The company attributes the fall due to lower reimbursement rates for prescription drugs and new competition from Amazon. It is also believed that the pharmacies face competition from Target and dollar stores. Over the past couple of years, CVS has shut down approximately 900 locations, while Rite Aid, which filed for bankruptcy, has shut down only 100.
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