Rite Aid Could Close Up to 500 Stores as Company Prepares for Bankruptcy

Image Source: AI Imagine 

Rite Aid, the nation’s third-largest drugstore chain, is negotiating terms of a bankruptcy plan that may result in hundreds of store closures across the U.S., according to a new report by the Wall Street Journal.

Sources familiar with discussions between Rite Aid and its creditors told the Journal that the pharmacy giant has proposed closing 400 to 500 “underperforming” locations as part of its Chapter 11 filing. This would represent nearly a quarter of Rite Aid’s 2,300+ stores nationwide.

However, one group of bondholders is pushing for the liquidation of even more stores during the bankruptcy process. Negotiations are still ongoing, so exact numbers have not been decided. But mass closures are expected as Rite Aid looks to emerge from bankruptcy as a smaller, more sustainable company.

Years of Mounting Debt and Lawsuits Led to Bankruptcy Decision

Rite Aid has struggled with over $3 billion in debt and a rising wave of litigation over its alleged contribution to the opioid crisis. According to legal experts, bankruptcy provides Rite Aid the best path to contain its liabilities.

“Chapter 11 bankruptcy would pause all pending litigation and provide Rite Aid an opportunity to resolve these suits through settlement agreements approved by the court,” said bankruptcy attorney Mark Gensburg of Goldberg Kohn Ltd.

The bankruptcy filing, which could come within weeks, is expected to include both Rite Aid’s massive debt obligations and the over 1,000 opioid-related lawsuits it currently faces. The claims allege the pharmacy chain negligently filled suspicious prescriptions that fueled opioid addiction and death.

One such lawsuit came in March from the U.S. Department of Justice, which accused Rite Aid of “knowingly” dispensing controlled substances without legitimate medical need. Rite Aid denies all allegations of unlawful conduct. It filed a motion to dismiss the DOJ’s civil fraud charges in October.

Store Closures Would Help Rite Aid Emerge Leaner Post-Bankruptcy

For Rite Aid, using bankruptcy laws to cut stores makes strategic sense. It allows the company to exit leases on unprofitable locations. Liquidating low-margin stores enables Rite Aid to reduce overhead costs and sharpen focus on core operations.

According to retail analyst Neil Saunders, about 800 Rite Aid stores currently qualify as either unproductive or barely profitable. Closing 400–500 of these locations through bankruptcy would be a reasonable right-sizing move by management.

“Rite Aid has too large of a footprint relative to business volumes. It needs to close excess stores so that remaining locations can recapture sales at higher profit margins,” said Saunders, of GlobalData Retail. “This is a smart financial decision that will strengthen Rite Aid’s position as it restructures.”

>>Related  Why Was the Las Vegas Judge Attacked?

As part of its bankruptcy plan, Rite Aid also aims to auction its Elixir pharmacy services unit to the highest bidder. The sale of Elixir and other assets is expected to generate cash to repay creditors. Moody’s estimates that Rite Aid’s assets could bring around $7 billion under ideal sale scenarios.

What Happens to Rite Aid Customers if Their Store Closes?

For pharmacy customers affected by impending store closures, Rite Aid says it will provide guidance on transferring prescriptions to nearby locations that remain open. The chain has over 50 million members enrolled in its wellness+ loyalty program who fill prescriptions at Rite Aid routinely.

Industry experts say larger rival CVS, which has around 10,000 U.S. pharmacy locations, is best positioned to pick up displaced Rite Aid customers. Walgreens, the closest competitor in store count, could also grab additional prescription volume in areas where Rite Aid exits.

Independent pharmacies may likewise see upticks in new customers as Rite Aid closures create market share opportunities. However, independents fill just 1 in 7 U.S. prescriptions currently.

“Independents lack the purchasing scale and convenient locations needed to capture significant share from national chains like Rite Aid,” said pharmacy accountant Rhonda Marcucci. “CVS and Walgreens will likely become the main beneficiaries if Rite Aid exits certain pharmacy markets.”

What This Means for the Future of Rite Aid

According to retail analysts, bankruptcy presents Rite Aid its strongest chance to shed baggage and emerge as a more viable competitor. The restructuring plan under discussion aims to refocus Rite Aid around higher-performing locations and emphasize profitable pharmacy services.

However, uncertainties remain about the company’s long-term outlook even after bankruptcy. Rite Aid continues losing market share as rivals expand healthcare services. Its annual revenue has shrunk by over $10 billion since 2015. And growing competition from online pharmacies threatens to further erode Rite Aid’s consumer base.

But CEO Heyward Donigan insists Rite Aid can still thrive in the evolving pharmacy landscape by capitalizing on advantageous trends.

“Our new corporate strategy emphasizes a retail healthcare model that provides whole health solutions to consumers. This will differentiate Rite Aid as our industry shifts toward delivering affordable, integrated care,” Donigan said in a statement. “By becoming a leaner company through restructuring, we can invest in growing our healthcare capabilities and create a next-generation pharmacy that improves people’s overall wellbeing.”

For continued coverage as Rite Aid’s bankruptcy plans progress, follow Health Industry News for updates. Our team of journalists keep readers informed on major pharmacy and healthcare developments.

You May Also Like

Related Posts