Retail Pharmacy's Future: Store Closures and Strategic Shifts

Current Trends in Store Closures

Retail pharmacy giants like Walgreens Boots Alliance (WBA) and CVS are closing underperforming stores as part of cost management and optimization programs. These closures are driven by factors such as capital discipline, future outlook, and efforts to improve operating income through reduced expenses.

"Primarily related to store closures and other asset impairments. The Company estimates that approximately 75% of the cumulative pre-tax charges relating to the Transformational Cost Management Program represent current or future cash expenditures, primarily related to employee severance and business transition costs, IT transformation and lease and other real estate payments." --- (WBA, sec filing, 2024/Q3)

"Adjusted operating income was approximately $1.2 billion, an increase of approximately 4% versus the prior year, driven by increased prescription volume, improved drug purchasing, and lower operating expenses, including the impact of store closures." --- (CVS, earning call, 2024/Q1)

"Karen Short: Yes. Doug McMillon: The clinic closures were related to capital discipline disciplines that relates to the income statement, but also because we didn't see things getting better in 2 years 3 years 4 years." --- (WMT, event transcript, 2024/06/07)

"To start, we are finalizing a multifactor store footprint optimization program which we expect will include the closure of a significant portion of these underperforming stores over the next three years." --- (WBA, earning call, 2024/Q3)

"For the Company's U.S. Retail Pharmacy and International segments, Comparable sales are defined as sales from stores that have been open for at least twelve consecutive months without closure for seven or more consecutive days, including due to looting or store damage, and without a major remodel or being subject to a natural disaster, in the past twelve months as well as e-commerce sales." --- (WBA, press release, 2024/06/27)

E-commerce and Digital Health Impact

Retail pharmacies are increasingly focusing on digital engagement and e-commerce growth. Walmart, Walgreens Boots Alliance, and CVS are enhancing their digital platforms to improve customer access to health services, prescription management, and wellness products, driving significant business growth and shaping the future of healthcare.

"And it's up 330 basis points in the year. Why because we're focusing on the things that really matter deepening digital engagement with our members 18% e-commerce growth and a third of our members are using Scan and Go now, which is really exciting." --- (WMT, earning call, 2025/Q1)

"Through dispensing medicines, improving access to a wide range of health services, providing high quality health and beauty products and offering anytime, anywhere convenience across its digital platforms, WBA is shaping the future of healthcare." --- (WBA, press release, 2024/08/08)

"We extended our digital reach with nearly 60 million unique digital customers utilizing our platform to schedule health services appointments, fill prescriptions, and purchase wellness products, all contributing to the growth in our business." --- (CVS, earning call, 2024/Q2)

"I'm excited to share a strong set of results. Last fiscal year, total revenue grew 6% to $648,000,000,000 E commerce sales grew to $100,000,000,000 up about $18,000,000,000 from the year prior, with a bottom line that's improving." --- (WMT, event transcript, 2024/06/05)

"Those things have high-growth potential. They build on our core business. We're streamlining how we operate, as we discussed around going to market with higher impact, how we develop services and how we partner across the industry with payers, health systems at-risk providers as well as pharma manufacturers." --- (WBA, earning call, 2024/Q3)

Strategic Shifts Towards Healthcare Services

Retail pharmacies are strategically shifting towards healthcare services, as evidenced by Walgreens Boots Alliance's appointment of Dr. Shrank to their board and their focus on retail pharmacy as central to healthcare. CVS is enhancing its healthcare benefits segment, while Walmart aims to improve healthcare services akin to its retail success. Amazon is also investing in healthcare, indicating a broader industry trend.

""Dr. Shrank is a strategic, experienced healthcare leader and I am proud to have him on our board as we execute the turnaround plan for our business," said Tim Wentworth, Walgreens Boots Alliance CEO." --- (WBA, press release, 2024/07/10)

"We're also making progress in many of our newer business investments that have the potential to be important to customers in Amazon long term, including what we're doing with Prime Video, Grocery, Healthcare, Kyper and Logistics and Fulfillment Services. I strongly believe that our best days are in front of us. And with that, I look forward to taking your questions." --- (AMZN, event transcript, 2024/05/22)

"These actions combined with our multi-year productivity initiatives and improved operational performance in our healthcare benefits segment give us the confidence that we are building positive momentum as we look to 2025 and beyond." --- (CVS, earning call, 2024/Q2)

"Well, we certainly had aspirations of being able to do with healthcare what we did to retail to improve the quality of services and do it at a lower price to help our customers and members save money and live better." --- (WMT, conference, 2024/06/25)

"Informed by our strategic review, we are focused on improving our core business: retail pharmacy, which is central to the future of healthcare." --- (WBA, press release, 2024/06/27)

Supply Chain Challenges

Retail pharmacies are grappling with supply constraints, unprecedented demand, and challenging price points, as highlighted by CVS. Walgreens Boots Alliance also cites significant challenges in the U.S. retail pharmacy business due to a worse-than-expected consumer environment and industry trends.

"Obviously there's been a lot of volatility. One, because of supply constraints that we've experienced and obviously a lot of work around managing what we would see is this unprecedented demand, combined with a very challenging price point is leading to a lot of energy around how to best manage this category through whether it be formulary, more aggressive utilization management." --- (CVS, earning call, 2024/Q1)

"The Company attributed its results and lowered guidance on the "significant challenges in the U.S. Retail Pharmacy business stemming from a worse-than-expected consumer environment and challenging pharmacy industry trends."" --- (WBA, press release, 2024/07/17)

Evolving Customer Behavior

Retail pharmacies are adapting to evolving customer behavior by enhancing value creation, focusing on convenience through delivery services, and leveraging customer relationships to expand strategically. These shifts aim to meet changing consumer preferences, such as increased demand for delivery and transparency in product offerings.

"If you demonstrate the fact that we are evolving and continuing to create value for our customers, which results in a high retention rate and a high growth rate, then our customers will ultimately begin to create the voice for making sure that they’re protecting and actually continuing to--you know, what I think is reinvest in the things like the PBM tools and the programs that we’ve delivered in the past." --- (CVS, earning call, 2024/Q2)

"The second thing is consumer behavior, consumer trends and where you look at the market and where our stores are located in terms of the markets that are growing versus the markets that are declining." --- (WBA, earning call, 2024/Q3)

"And it's been exciting to see just these last few months that delivery is now exceeding the other channels, which is great which gives the customer a lot of optionality and then the number that Doug mentioned earlier 4.4 billion units delivered same day next day is exciting and it's growing quickly and as he also mentioned about 20% of that is sub-three hours and we've expanded that service earlier in the morning, later at night so we're becoming even more convenient for individuals for shoppers and families in a -- in terms of being able to serve all of their needs." --- (WMT, earning call, 2025/Q1)

"It helps create a platform and a demonstration that the product will actually work effectively for members on a high deductible plan, and we’re also beginning to evolve this and roll this model out to the rest of our book, so we’re looking obviously at waves or attributes of the model and we suspect that we will have close to two-thirds of our customers on at least a couple of the attributes as we try to rebalance and create more transparency at the member level." --- (CVS, earning call, 2024/Q2)

"First, to simplify and focus our business. Second, to use our core foundation, our relationship with our customers to grow and expand in capital-efficient ways into adjacent areas." --- (WBA, earning call, 2024/Q3)

Competitive Landscape in Retail Pharmacy

CVS, WBA, and WMT all acknowledge the highly competitive environment in retail pharmacy. CVS highlights its strong market position and innovative programs like CostVantage, while WBA emphasizes the centrality of retail pharmacy to its growth strategy despite profit pressures. WMT also notes the intense competition in the sector.

"Yes. I think I'll start with the retail pharmacy. I think given sort of the landscape of retail pharmacies, I think we're well positioned there and very competitive." --- (CVS, conference, 2024/05/29)

"Retail pharmacy is central to the future of the experience that we're going to create and the growth that we will have." --- (WBA, earning call, 2024/Q3)

"And you already said and you don't know competitive response to No. Look, we operate in a very competitive environment." --- (WMT, conference, 2024/06/25)

"At the end of the day, if you think about the retail pharmacy reimbursement landscape and how it works, what we’re doing with CVS CostVantage allows pharmacies to be reasonably compensated for the care and the value that they provide in the local communities, so I would say more to come in the next couple quarters, but we remain positive about where we stand at this point with CVS CostVantage and how it’s resonating in the marketplace." --- (CVS, earning call, 2024/Q2)

"The decrease reflects lower pharmacy and retail gross profit due to generic prescription launches and increased pharmacy reimbursement pressure, including the impact of unfavorable NADAC changes, net of procurement savings, as well as reduced incentive accruals in the year-ago period and lower Cencora equity income, partly offset by execution in pharmacy services and cost savings." --- (WBA, sec filing, 2024/Q3)

Future Outlook for Retail Pharmacies

Retail pharmacies are focusing on integrating comprehensive healthcare services and innovative programs like CVS's Maintenance Choice, while also engaging in discussions about new reimbursement models. Companies like Walgreens and Walmart are emphasizing coordinated care and expanding healthcare services to adapt to future market demands.

"(9) Health Services pharmacy network revenues relate to claims filled at retail and specialty retail pharmacies, including the Company's retail pharmacies and LTC pharmacies, as well as activity associated with Maintenance Choice®, which permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS pharmacy retail store for the same price as mail order." --- (CVS, press release, 2024/05/01)

"So one, what do you view as the future of pharmacy? And within that, can you talk about the conversations that you're having with payers and PBMs around what the new reimbursement model will look like?" --- (WBA, earning call, 2024/Q3)

"And so our mindset would be we would like to find a way to help. Obviously operating big pharmacies and some markets and having other types of healthcare services including OTC and other things give us some room to play with." --- (WMT, event transcript, 2024/06/07)

"(2) Pharmacy network revenues relate to claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies, as well as activity associated with Maintenance Choice, which permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS pharmacy retail store for the same price as mail order." --- (CVS, sec filing, 2024/Q1)

""When a patient must confront a life-changing, serious health challenge and begins therapy for a chronic or complex condition, our pharmacists are right there to guide and care for them throughout their healthcare journey —from helping them order and take their medication to identifying financial assistance opportunities and working with their doctor and insurance plan to make sure they're receiving the most coordinated care," Gates said." --- (WBA, press release, 2024/04/24)