American drugstores are disappearing from street corners, with big chains Walgreens and CVS closing hundreds of locations and independent pharmacies struggling to survive.
The reshaping of a ubiquitous part of the retail landscape reflects the pressures building up within stores.
In the back of the store, business at pharmacy counters is being squeezed by drug reimbursement rates and pharmacist salaries. In the aisles, sales of everything from greeting cards to cosmetics are feeling the effects of low-price competition.
CVS, the largest drugstore chain by number of stores, has closed 900 stores in the past three years and plans to close 270 more in 2025. Walgreens has reduced its U.S. footprint by 1,000 stores in the past six years and plans to pull the plug on about 1,300 others over the next three years. Smaller rival Rite Aid emerged from bankruptcy proceedings in September offering dozens of surplus properties for lease.
Wall Street has taken a dim view of the outlook for pharmacy operators, with shares of parent company CVS Health down more than 40 percent and Walgreens Boots Alliance down more than 60 percent in 2024.
“The whole four-wall pharmacy economic model is collapsing in on itself, in my opinion,” said Josh Cummings, a portfolio manager at Janus Henderson Investors.
The U.S. drug shortage has also sent ripples through commercial real estate markets and has public health officials worried about the spread of “pharmacy deserts” — areas without convenient access to drugs — often in poor urban areas and rural.
Pharmacies received a boost as testing and vaccination centers during the Covid-19 pandemic. But as the virulence of the disease fades, structural problems have re-emerged for the country’s pharmacies.
Prescription drug dispensing is a $621 billion business, according to the Drug Channel Institute, and it drives about three-quarters of U.S. pharmacy sales. The profitability of the business depends on a complex payment network that includes patients, pharmacies, drug wholesalers and health insurance intermediaries known as pharmacy benefit managers.
Benefits managers have been pushing for years for lower reimbursements paid to pharmacies for the prescriptions they fill, said Elizabeth Anderson, analyst at Evercore ISI. That has consistently reduced Walgreens’ gross profit margin by more than half a percentage point each year, she said.
Pharmacies also have relatively high labor costs with pharmacists who can earn more than $125,000 a year, Anderson said. Pharmacists, complaining of pressure to increase sales, have organized a union.
Chain pharmacies expanded aggressively at the turn of the century through construction and acquisition, leaving more than 60,000 pharmacies across the country.
“I think most of us knew. . . that retail pharmacy was largely built for where the future was going to be, especially given the possibility of technology, home delivery and so on,” Tim Wentworth, chief executive of Walgreens, said in June. Walgreens Boots Alliance, which also owns UK pharmacy chain Boots, is now in talks to sell itself to private equity firm Sycamore Partners.
CVS Health, the parent of the eponymous pharmacy chain, also has an in-house benefits manager, shielding itself from some of the drug reimbursement pressures. But he still has to negotiate with external managers as well.
CVS noted factors including population shifts, consumer shopping patterns and pharmacy density to inform store closing decisions. Even as it closes hundreds of stores next year, it plans to open almost 30 new locations, including several inside Target, the mass retailer where CVS already operates pharmacies.
“We are closing locations strategically to better meet consumers’ needs for health, wellness and pharmacy care — as announced more than three years ago — not in reaction to industry pressures,” CVS said.
Pharmacies have long competed with pharmacies located in supermarkets and Walmart, the American retail giant. The latter aims to launch same-day home delivery of medicines nationwide by the end of January.
Amazon, which acquired online pharmacy PillPack in 2018, is also delivering same-day drug delivery to almost half the country by 2025. “We’re building a modern pharmacy; what we like to think of as a pharmacy in your pocket,” said Hannah McClellan, vice president of operations, product and technology at Amazon Pharmacy, in a press conference earlier this year.
Pharmacists also face increasing competition in the “front of the store,” where items as diverse as over-the-counter medicines, toothpaste, snacks and stationery are sold – usually at higher prices. Some products are sealed behind plastic to prevent theft, creating a nuisance that can cut into sales.
“The price is much more competitive on Amazon or even a grocery store or mass merchandiser, and they really haven’t done much to improve their value positioning,” said Mike Blackburn, an executive vice president at RetailStat, a research the retail industry. the company.
The number of pharmacies peaked in the middle of the last decade at about 66,000, according to a study published this month in the journal Health Affairs. However, there has been considerable upheaval in the sector: according to Dima Qato, one of the study’s authors, of the pharmacies operating at any point in the previous decade, 29 percent had closed by 2021.
The National Association of Community Pharmacists, a trade group based in Alexandria, Virginia, estimated that independent community pharmacies reached 18,984 locations in June, up from 19,432 a year earlier.
“I don’t know how this is going to shake out, to be honest,” said Christine Mastandrea, chief operating officer at Whitestone Reit, a commercial landlord with tenants that include Walgreens. “I know a lot of corners are going to come up for sale.”