Walgreens executives plan to close roughly 1,200 stores over the next few years in an attempt to right the business as it contends with declining drug reimbursement rates, competition from newer players like Amazon, and labor shortages.
CEO Tim Wentworth announced the closures during the company’s Q4 earnings call on October 15, in which the company reported a $3 billion net loss for the quarter, bringing the year’s total net loss to $8.6 billion—a 180% increase from the prior year.
Wentworth said during the call that the store closures “will realign our footprint to a healthier store base that we believe will enable us to respond more dynamically to shifts in consumer behavior and buying preferences.”
The closures don’t come as a total surprise, as Wentworth said in June during the Q3 earnings call that Walgreens could close up to 25% of the chain’s roughly 8,600 stores over the next three years. In the most recent earnings call, Wentworth said that about 6,000 of the company’s stores are profitable.
Walgreens expects about 500 closures to take place during the upcoming fiscal year ending in August 2025, but executives did not specify which locations would shutter. Manmohan Mahajan, the company’s EVP and global CFO, said during the earnings call that Walgreens will prioritize closing stores that are underperforming, have negative cash flow, and have leases expiring in the next few years.
“This turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term,” Wentworth said in a statement. He added on the earnings call that the company will “redeploy the majority of the workforce” in stores that end up closing.
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Zooming out. Walgreens isn’t alone in making cuts.
CVS executives announced on October 1 that the company would lay off roughly 2,900 employees as part of a $2 billion cost-cutting plan, Reuters reported. It’s working on a three-year plan that was implemented in 2021 to close 900 stores, roughly 10% of the chain’s total footprint.
Rite Aid has also shut down more than 520 stores in the past year after filing for bankruptcy, CBS reported. The company announced on September 3 that it had exited the bankruptcy process and was planning to move forward as a private company.
In addition to the store closures, Walgreens executives announced in August that the company would consider selling its VillageMD primary care subsidiary, which it purchased for $5.2 billion in 2021.
The move also comes after Walgreens agreed to pay the federal government $106.8 million in September to settle allegations that the company had violated the False Claims Act by improperly submitting claims to Medicare, Medicaid, and other federal health programs for prescriptions patients never picked up.
Going forward. Wentworth seems to want to take Walgreens back to its pharmacy roots as opposed to former CEO Rosalind Brewer’s vision of turning it into a “consumer-centric” healthcare company.
Walgreens is “reorienting to its legacy strength as a retail pharmacy-led company,” Wentworth said on the earnings call.
He added that the company’s priorities in the near future are stabilizing pharmacy margins, focusing on its retail strategy, and improving its net debt position.
The company also plans to “reframe” its relationship with pharmacy benefit managers in order to make sure Walgreens is fairly reimbursed for the drugs it dispenses, Wentworth said during the earnings call.