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Image: CNBC

The three largest drugstore chains in the U.S. — CVS, Walgreens and Rite Aid — are shuttering nearly 1,500 stores across the country, citing economic pressures and changing consumer habits.

The closures come at a turbulent time for the pharmacy industry, with shifting shopping preferences, retail theft and competition from grocery and online outlets creating headwinds. Industry experts say the chains failed to adapt to changing demands.

Rite Aid Faces Bankruptcy as Struggles Mount

Rite Aid, the third largest U.S. drugstore chain, is preparing for bankruptcy as it grapples with $3.3 billion in debt and pending opioid lawsuit settlements, according to reports.

The Pennsylvania-based company, which operates 2,100 pharmacies nationwide, proposes closing 400–500 locations. But bondholders want more closures to restructure the business. Rite Aid’s retail pharmacy segment had $17.8 billion in 2021 revenue.

This downsizing spotlights deep-rooted issues plaguing traditional drugstore models. Experts say chains must fundamentally reinvent themselves to survive.

CVS Shutters 900 Stores in “Rightsizing” Move

CVS, the second largest U.S drugstore, recently completed a strategic review and announced plans to close 900 stores between 2022–2024. So far, 300 have gone dark.

The move aims to “rightsiz[e]” CVS’ retail footprint as sales shift online. But analysts say many stores have become rundown and outdated.

“Too many CVS locations have unacceptable cleanliness, layout, and signage,” said Neil Saunders of GlobalData. “They are uninviting and depressing places to shop.”

With nearly 10,000 pharmacies nationwide, CVS still has scale. But its remaining stores must evolve to meet changing consumer expectations.

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Walgreens Plans 150 Closures to Cut Costs

Walgreens, the top drugstore chain, recently announced plans to close 150 stores to reduce expenses. It’s also cut hours at some 1,100 locations.

Citing economic pressures on consumers, Walgreens CEO Rosalind Brewer said: “Our customer is feeling the strain of inflation” at its over 9,000 pharmacies.

While restructuring aims to improve profitability, analysts caution it may not address deeper issues, like lack of differentiation. Customers still have ample pharmacy access, so Walgreens must give them reasons to visit.

Chain Drugstores Lose Distinction

At one time, chain drugstores occupied a unique health and wellness niche. Today, they face competition from all sides:

  • Grocery stores offer one-stop prescription refills while shopping. Chains like Kroger, Albertsons and Publix have in-store pharmacies.
  • Mass merchants like Costco, Walmart and Target operate full pharmacy services conveniently located inside their stores.
  • Online pharmacies ship medications straight to your door. Amazon launched prescription delivery, underscoring this fast-growing option.
  • Independent pharmacies provide personalized care and expertise. Their numbers grew 13% from 2010–2019, reports show.
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Chain drugstores once dominated a specific sector. Now consumers can get the same products and services elsewhere. The chains must identify new ways to differentiate.

Lack of Innovation Leaves Chains Vulnerable

Beyond competition, analysts say pharmacy chains missed opportunities to evolve:

  • Offerings are too similar. The big three sell nearly identical assortments. They added beauty items and groceries but never created truly unique destinations.
  • Other retailers now own key categories. Chains are no longer the leader in beauty, snacks, household items or everyday essentials. Specialists like Sephora and Trader Joe’s have taken over.
  • Messaging is unfocused. Dabbling across many merchandise areas diffuses their health and wellness positioning. It’s unclear what the chain drugstore experience entails today.
  • Format feels outdated. Fluorescent-lit stores with crowded aisles worked in the 20th century. Today’s consumers expect a more curated, interactive retail environment.
  • They missed chances to evolve. Despite huge store networks, chains were slow to create 21st century pharmacy models rooted in health services.

Convenience Shifts to Other Venues

Today’s time-strapped consumers demand convenience above all. Drugstores once owned this space as the most accessible pharmacy option.

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But now pharmacies inside grocery stores and big box retailers offer speed and ease:

  • Prescription refills become part of the regular shopping trip at Kroger or Costco.
  • Picking up medications while browsing Target or Walmart is easy one-stop shopping.
  • Chains like H-E-B and Albertsons provide drive-thru pharmacies for ultimate convenience.
  • According to J.D. Power’s 2023 survey, supermarket pharmacies rank much higher than drugstores in customer satisfaction.

Filling prescriptions during a regular shopping trip proves more convenient than making a dedicated drugstore visit. Chains must make this core task far easier.

Organized Retail Crime Adds More Pressure

Pharmacies already operate on thin profit margins. Now organized theft rings target their easily resold, high-demand products like over-the-counter medications.

This retail crime epidemic cost retailers $94.5 billion in 2021. Pharmacies and drugstores have some of the highest employee theft and shoplifting rates.

In response, chains added security tags and locked up merchandise. But this backfired by annoying customers and damaging sales.

Finding solutions is critical as high shrink rates cut deeply into margins. But overt security detracts from their core health care mission.

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