The glory days of retail pharmacy may be over.
During the Covid-19 pandemic, retail pharmacies including CVS, Walgreens, Rite Aid, and Walmart saw increased foot traffic as customers flocked to the stores for medications and household items like toilet paper and hand sanitizer. Plus, with the help of government funding, chains earned billions from distributing Covid vaccines, collectively pulling in $7.5+ billion by the end of 2021, according to pharmaceutical research firm Drug Channels Institute.
CVS, for example, reported $66.9 billion in revenue at the end of its 2019 fiscal year. By the end of the 2021 fiscal year, that increased to $76.6 billion.
But things seemed to change for the sector by the end of 2022 when fewer people were getting Covid vaccines and tests. Rite Aid filed for bankruptcy last October, and CVS and Walgreens reported steep losses over 2024.
So, what went wrong?
Experts say there are several factors, including changing consumer habits, increased competition, and a string of multibillion-dollar acquisitions that haven’t paid off.
“The pandemic really gave these companies a sense of false hope into who their customers were and what they wanted from a healthcare perspective,” Rajiv Leventhal, senior analyst in digital health at research firm EMarketer, told Healthcare Brew.
Retail woes
Retail pharmacies are facing challenges as consumer shopping preferences change, according to Leventhal.
While customers used to buy many household items at a local pharmacy, they are increasingly turning online, as shoppers tend to spend where they get the best deal, Leventhal said.
Amid these shifts, CVS and Walgreens revealed plans to reduce their brick-and-mortar footprints. In October, Walgreens CEO Tim Wentworth said in the company’s Q4 earnings that it’s looking to shut down 25% of the chain’s roughly 8,600 stores.
CVS announced it would close 10% of its 9,000 sites and is also considering splitting up its assets, as its insurance arm Aetna’s recent poor financial performance has brought down the rest of the company.
Rite Aid came out of bankruptcy in September and is now operating as a private company. The bankruptcy process allowed the company to eliminate $2 billion in debt, and they received an additional $2.5 billion in exit financing, the company announced at the time.
Increased competition
New digital entrants to the pharmacy market, including Amazon and Mark Cuban Cost Plus Drugs Company, are also challenging the status quo for traditional brick-and-mortar retail pharmacy companies, Rohan Kulkarni, executive research leader for global research firm HFS Research, said.
Amazon Pharmacy, which started up in 2020, has continuously added new services such as home prescription delivery for Medicare beneficiaries and drone deliveries.
Then, billionaire investor Mark Cuban founded Cost Plus Drugs in January 2021 to provide “radical transparency” in medication pricing. The company offers thousands of lower-cost generics (and a select number of brand-name drugs) by skirting pharmacy benefit managers and charging prices direct from drugmakers.
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Kulkarni said he believes these new entrants will be formidable competitors “because their business model is based on a premise that what we have today is not working.”
A 2024 study found that 33% of US consumers purchase prescriptions and other healthcare products online. “Consumer purchases from online pharmacies continue to grow rapidly due to the convenience, accessibility, and cost savings that they provide,” the researchers wrote.
Primary care blunders
Retail pharmacy companies have also struggled in the primary care and urgent care markets.
In October 2021, Walgreens bought primary care chain VillageMD for $5.2 billion, and in February and March 2023, respectively, CVS bought primary care clinic operator Oak Street Health for $10.6 billion and spent $8 billion to acquire value-based provider network Signify Health.
Walmart also started a primary care business in 2019, but announced in April 2024 that it would close all 51 of the clinics down after losing $230 million on that side of the business.
But Walgreens executives said in August 2024 that they’re considering selling off VillageMD after reporting a $6 billion net loss in its Q2 2024 earnings. CVS, in its most recent Q3 earnings released on November 6, also reported that revenues for its health services segment were down 6% compared to the year prior, from $46.9 million to $44.1 million.
Considering Walmart’s size, Leventhal said, if this mega retailer “can’t justify 50 health clinics…that just shows you how difficult this is. I don’t think these retailers really have any idea how to successfully operate patient care as part of the business.”
What’s next?
Walgreens and Walmart have recently dropped hints that they want to focus more on specialty pharmacy, a subdivision focused on high-cost, complex drugs, such as cancer treatments and medications for rare genetic diseases. Pharmacies tend to bring in higher revenue from dispensing specialty drugs compared to regular prescriptions, according to group purchasing organization PBA Health.
In April, Walgreens consolidated its specialty pharmacy services into a new business unit, which Rick Gates, SVP and chief pharmacy officer, projected at the time will bring in $24 billion per year.
Walmart executives said in July the company will open 25 “specialty pharmacies of the community” focused on treating patients with autoimmune diseases.
To date, neither CVS nor Rite Aid have made any announcements about expansion into specialty pharmacy.
In order to successfully compete with one another, retail pharmacies will need to “find their competitive advantage,” Leventhal said.
“It’s going to be figuring out which stores are worth standing up—and keeping—and figuring out how to adapt to consumer preferences by making more of your services and offerings through digital means,” he said.