Walgreens to shutter up to 25% of retail stores nationwide
The current pharmacy model is unsustainable as Walgreens is in discussions with PBM and payer partners to get paid fairly, CEO says.
Photo: Courtesy Walgreens
Walgreens plans to shutter up to 25% of its retail stores that are unprofitable, CEO Tim Wentworth said June 27 during the business's Q3 earnings call.
Walgreens stores drive $27 billion of retail sales, Wentworth said.
"But the customers involved, demographics and preferences have shifted, and we need to reposition and operate our stores accordingly," Wentworth said. "Currently, 75% of our U.S. stores contribute roughly 100% of segment AOI (adjusted operating income). For the remaining 25% of the stores in our network, which are not currently contributing to our long-term strategy, changes are imminent."
This will include, he said, "the closure of a significant portion of these underperforming stores over the next three years."
Walgreens Boots Alliance GAAP net loss was $5.6 billion for the nine months ending May 31, compared with a loss of $2.9 billion in the first nine months of fiscal 2023, according to Global CFO Manmohan Mahajan.
WHY THIS MATTERS
A major driver of sales for retail pharmacies is revenue from prescription drugs. However, pharmacies are facing greater reimbursement pressure from pharmacy-benefit managers, according to The Wall Street Journal.
The script market is growing but continues to trail below pre-pandemic growth levels, Wentworth said during the earnings call.
"These headwinds have affected our performance and are materially weighing on our ability to serve patients profitably," Wentworth said. "We are at a point where the current pharmacy model is not sustainable and the challenges in our operating environment require we approach the market differently. For example, we are in active discussions with our PBM and payer partners to align incentives and ensure we are paid fairly."
Script volume growth will remain muted as Walgreens anticipates continued pressures on pharmacy margins, Wentworth said. The operating environment has changed and is expected to remain challenging.
"In retail, despite easing comparisons, we do not anticipate significant improvement in the U.S. consumer spending backdrop," Mahajan said, "We are especially seeing signs of strain on the lower income consumer, driven by accumulated inflation and depleted savings."
THE LARGER TREND
To cut costs, Walgreens also plans to reduce its stake in VillageMD and will no longer be the company's majority owner, the WSJ report said.
Walgreens announced plans earlier this year to close unprofitable VillageMD clinics as part of a $1 billion cost savings strategy.
Wentworth said June 27 that following last quarter's actions to right-size VillageMD's footprint, the business is now on a clearer path to profitability.
Walgreens Boots Alliance announced plans in October 2023 to shutter healthcare clinics in unprofitable markets.
Email the writer: SMorse@himss.org
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