by
new York
CNN
—
Walgreens is closing about 1,200 locations as the drugstore chain struggles to cope with online competitors and declining payments for prescription drugs.
By 2027, about one in seven Walgreens currently open will close. About 500 Walgreens will close over the next year, the drugstore chain announced Tuesday.
These closures represent a significant escalation from a few months ago, when the financially troubled company announced in June that it was closing 300 underperforming locations as part of a multi-year, CEO-led optimization program Tim Wentworth. At the time, the company said about a quarter of Walgreens stores were unprofitable and the chain promised changes “imminent.”
The company nevertheless managed to record stronger-than-expected sales in the most recent quarter. The chain’s revenue rose 6% from the same quarter last year, but Walgreens reported a $3 billion loss, largely due to the writedown of a Chinese drug chain and a home care provider called CareCitrix.
The latest round of closures is “emblematic of a company that is in trouble and trying to turn things around,” according to Neil Saunders, retail analyst and managing director of GlobalData Retail.
“Walgreens spent years growing its business through acquisitions and neglected the fundamentals of its stores and retail operations,” he told CNN. “This has pushed many outlets into a position where they are losing sales and not generating returns. »
Shares of Walgreens (WBA) rose nearly 4% in premarket trading. However, its stock is down nearly 70% for the year.
These closures come in a difficult context for pharmacy chains, which are hit on several fronts.
Large pharmacy chains, including CVS and Rite Aid, have struggled in recent years due to declining profits from filling prescriptions. They have declined due to falling reimbursement rates for prescription drugs and new competition from Amazon.
Earlier this month, CVS announced it would cut about 2,900 jobs as part of a $2 billion cost-savings initiative. The layoffs, which mainly affect jobs in companies, are in addition to around 5,000 job cuts announced last year.
The drugstore front end, where they sell snacks and essentials, is also facing pressure from larger competitors, including Target, and even Dollar General’s growth has also hurt drugstore chains in areas rural.
In May, Walgreens slashed prices on more than 1,000 items, following its competitors, in an effort to once again attract shoppers tired of inflation and discouraged by high prices.
CEO Wentworth said in a statement that “the recovery will take time, but we are confident it will deliver significant long-term financial and consumer benefits.”
Saunders said Walgreens’ elimination of “dead wood will help the company strengthen its finances over time, but it’s a huge admission of failure.”
