Walgreens is closing about 1,200 locations, which is a decision made against the background of circumstances such as the competition of this pharmacy chain with similar virtual platforms and a decrease in payment for prescription drugs.
The mentioned company expects that by 2027, one in seven of its currently operating stores will be shut down. Also, about 500 objects of this brand will be closed during the next year. The company made a statement of the relevant content on Tuesday, October 15.
It’s worth noting that the announced solutions are a significant step forward in the context of reducing the scale of the brand’s functional chain compared to those similar plans that were observed a few months ago. In June, the firm, which is currently facing financial difficulties, stated its intention to close 300 underperforming locations. It is also worth clarifying separately that these actions are part of a multi-year optimization program under Walgreens chief executive officer Tim Wentworth. In June, the company said that about a quarter of its stores were classified as unprofitable. Also, at that time, the firm promised imminent changes, implying the process of functioning of its chain of physical presence.
At the same time, the company’s financial problems are not an obstacle to the upward dynamics of its performance indicators. Last quarter, the firm’s sales turned out to be higher than preliminary expectations. The revenue of the company’s chain increased by 6% compared to the same quarter a year ago.
At the same time, Walgreens reported losses totaling $3 billion. To a large extent, this indicator is the result of a write-down of the Chinese pharmaceutical chain and home care provider CareCitrix.
Neil Saunders, retail analyst and managing director at GlobalData Retail, said the latest tranche of closures is emblematic of a company that is in trouble and trying to correct a course. During a conversation with media representatives, the expert noted that Walgreens spent years building its business through acquisitions and neglected the basic principles of its stores and retail operations. Neil Saunders also stated that the result of the mentioned approach was that many outlets found themselves in a state of affairs in which a drop in sales and a lack of returns were recorded.
The value of Walgreens shares rose by almost 4% in premarket trading. At the same time, the corresponding indicator decreased by about 70% for the year.
The closure of locations of drugstore chains is a kind of logical manifestation of the difficult period that the relevant business is going through. It is worth noting that in this case there are difficulties in several directions.
In recent years, major drugstore chains, including CVS and Rite Aid, have been facing the problem of falling profits from filling prescriptions. The corresponding indicator turned out to be on a downward trajectory due to lower reimbursement rates for prescription drugs and against the background of new competition from Amazon.
It’s worth noting that this month CVS announced the cutting of about 2,900 jobs. The corresponding decision was made as part of an initiative aimed at saving costs of $2 billion. It is worth clarifying that in this case, layoffs affect mainly corporate jobs. Last year, the company decided to lay off about 5,000 employees.
The front-end of drugstores where they sell snacks and household staples are also currently facing such negative circumstances as pressure from larger competitors, including, for example, Target. It is worth noting that the growth of Dollar General has also become a factor in the damage to drugstore chains in rural areas.
In May, Walgreens decided to lower prices for more than 1,000 items. It is worth noting that the corresponding decision was made within the framework of the practice of following the approaches of competitors. Also, in this case, the company’s actions are largely related to the desire to lure back customers who are tired of inflation and turned off due to high prices.
The head of Walgreens said it would take time to turn around the current state of affairs. He also expressed confidence that the company’s present solutions will generate significant financial and consumer benefits in the long term.
Neil Saunders stated that the firm’s actions to eliminate unprofitable components of the functional structure will help the brand strengthen its financial performance over time. At the same time, the expert noted that in this case, Walgreens admitted its failures.
As we have reported earlier, Walmart Closes 4 Chicago Stores.
