Off The Record
Why Thousands Of Stores Are Being Closed By CVS, Walgreens, And Rite Aid In The US
Major drugstore chains in the US, including CVS, Walgreens, and Rite Aid, have started to close locations in recent years.
There are concerns regarding the future of community pharmacy and the factors influencing these decisions due to the recent wave of closures that has affected thousands of sites.
Here’s a closer look at the reasons for these businesses closing and the implications for customers, particularly in underprivileged areas.
The Shift Toward Online Shopping
The COVID-19 pandemic has radically altered consumer purchasing behavior. An increasing number of consumers are choosing curbside pickup, delivery services like Instacart, or internet shopping. CVS declared its intention to close 900 shops by the end of 2024 in reaction to this change. [1]. The corporation started this procedure in 2022 and plans to close about 300 outlets annually. This choice is in line with CVS’s plan to lessen its physical presence while concentrating more on digital services.
Prior to the closures, CVS had 10,000 retail sites, meaning it is still widely present in many towns. But the business intends to update a large number of its surviving locations and turn them into HealthHubs, which provide more comprehensive health services than a typical drugstore.
Financial Struggles and Competition
In the pharmacy industry, one of the main causes of store closures is financial strain. For instance, Walgreens declared that almost 25% of its US locations are losing money. [2] . The business, which has over 8,600 sites, has been having trouble with competition, theft, and botched expansion plans. Recently, Walgreens said that they intend to eliminate a “significant” number of shops in an effort to reduce expenses and boost profitability.
Not just Walgreens is following this trend. Falling prescription drug reimbursement rates are putting financial hardship on CVS, Rite Aid, and other large businesses. Prescription filling is a major source of income for the pharmacy sector, but decreasing pharmacy benefit manager (PBM) reimbursement rates are eating into earnings.
The Role of Pharmacy Benefit Managers (PBMs)
The role of PBMs is one of the main issues that pharmacies are currently confronting. These middlemen mediate drug pricing negotiations on behalf of manufacturers, insurance, and pharmacies. Pharmacies contend that PBMs are making it more difficult to make a profit by decreasing their reimbursement rates, despite PBMs’ claims that they help keep prescription prices low.
Elizabeth Anderson, an analyst at Evercore IRI, explained that “if reimbursement rates start to come down and drug stores can’t offset it with other growth, then it has a negative impact on their profitability.” This economic strain has led many pharmacies to close locations, especially in areas where reimbursement rates are lower, such as communities with a higher percentage of public insurance recipients.
Pharmacy Deserts and Community Impact
“Pharmacy deserts”—areas where locals have little to no access to a nearby pharmacy—are one of the most alarming effects of widespread store closures. Studies show that these closures have a disproportionately negative impact on low-income and minority communities. [3]. Pharmacy deserts are primarily located in Black and Latino communities, which exacerbates already-existing healthcare disparities, according to a study done in major U.S. cities.
For example, Walgreens encountered opposition in Boston when it announced it was closing a number of stores in neighborhoods with a high concentration of minorities. Protesters in the area expressed worry that losing pharmacies would make it more difficult for people to get basic medical treatment.
The Move Toward Healthcare Services
Healthcare services have become the focus for both CVS and Walgreens in an effort to stay competitive. More than 1,000 CVS locations will become HealthHubs, providing services including primary care, yoga sessions, and mental health assessments. This change is intended to help the business diversify its revenue streams and satisfy the rising need for healthcare.
In a similar vein, Walgreens made a $5.2 billion investment in the primary care network VillageMD. Walgreens is currently closing certain VillageMD stores in an attempt to reduce losses, but the corporation has yet to see a significant return on its investment.
The Future of Retail Pharmacies
The closures of CVS, Walgreens, and Rite Aid serve as evidence that the retail pharmacy industry is undergoing a wider shift. Traditional pharmacies need to change to stay in business as healthcare services change and consumers spend more online. Although these closures could benefit businesses financially, they might also have a long-term impact on vulnerable populations’ access to healthcare.
“We are at a point where the current pharmacy model is not sustainable,” one analyst stated. The closing of a neighborhood pharmacy sometimes results in fewer options for daily necessities and medical care, in addition to fewer locations to pick up prescription drugs.
A Changing Landscape
A number of variables have come together to cause the nationwide closures of CVS, Walgreens, and Rite Aid shops. These issues include changing consumer behavior, financial challenges, and growing competition from internet retailers like Amazon. Although these choices could aid businesses in achieving financial stability, it is impossible to overlook how they would affect customers, especially those in underprivileged areas.
In order to guarantee that all communities have access to the healthcare services they require, businesses operating in retail pharmacies must strike a balance between accessibility and profitability as the model develops.
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