“It’s a cocktail of problems,” Neil Saunders, the managing director of retail for Global Data, told The Epoch Times. Saunders said the pharmacies grew too fast, they are dealing with less profits associated with generic drugs, have become inefficient, and have tried unsuccessfully to integrate health care solutions into their business model.
Consumers Are Changing Buying Habits
During his Oct. 15 earnings call, Walgreens CEO Tim Wentworth said the planned closures were part of a “footprint optimization program” that will eventually lead to the closure of about 1,200 stores around the country until 2027, including 500 in fiscal year 2025. The company believes that the move will open up some cash flow, and the company will try to solve what he admits is something missing in the chain’s relationship with shoppers, pledging to invest in that factor, making stores “more relevant to consumers.”He added that he believes the closures and the revenue generated will “enable us to respond more dynamically to shifts in consumer behavior and buying preferences.”
Mr. Saunders said the drug-chain closures will force many consumers, especially those in rural areas, to adopt the practice of filling their drug prescriptions by mail. He believes that spells yet more bad news for a beleaguered industry.
“Not everyone likes it, but it’s cheaper for the insurance companies and a heck of a lot more convenient for the consumer. It’s an essential need, and if it can be delivered right to your home, so why not?” he said.
“Once people switch and get comfortable with it, [it] will eventually undermine one of the points of differentiation for pharmacies. If consumers don’t go in the stores, they aren’t going to pick up impulse purchases and their business model is going to unravel.”
Another issue still affecting some of the nation’s drug stores is payouts made in late 2022 to settle lawsuits linked to opioid sales. The agreements resulted in CVS, for example, paying $4.9 billion over 10 years and Walgreens paying $5.52 billion over a 15-year period.
“They’re all scrambling to put more discipline in their businesses and support the bottom line. The opioid settlement cost a fortune for many of these drug chains, which have been hit by multiple blows, and they’ve all decided they need to restructure. This is why it’s seemingly happening all at once,” Mr. Saunders said.
“I also think the reason it’s happening now is that the general performance of the chains is poor. And that’s the function of the fact a lot of their health care bets haven’t paid off and the retail side is under more pressure because consumers have cut back.”
For the industry, trying to work with intermediate pharmacy benefit managers (PBMs) is also being blamed for not making enough profit from prescriptions.
The PBMs handle various aspects of the drug industry, including Medicare Part D drug plans, acting as an intermediary between insurance companies and pharmacies to, among other things, negotiate prices. This is a relationship that organizations such as the National Association of Chain Drug Stores (NACDS) want to see changed by Congress.
“The story that must continue to be told—and that Congress must act on—is the harmful tactics of pharmacy benefit manager middlemen that are harming Americans and their pharmacies,” NACDS president and CEO Steven C. Anderson said in a statement sent to The Epoch Times.
“The market-dominant, vertically integrated companies are harming the vast majority of pharmacies—small and national alike.”
