Walgreens, one of the largest pharmacy chains in the United States, has announced plans to close a substantial number of its approximately 8,600 locations nationwide. This move is part of a multi-year strategy aimed at resetting the struggling pharmaceutical chain’s business.
Although the company did not specify the exact number of store closures, it indicated that the closures would be “significant.” CEO Tim Wentworth, in an interview with The Wall Street Journal, mentioned that a “meaningful percent” of the underperforming locations would be shuttered.
The decision to close stores is a component of Walgreens’ multi-year footprint optimization program. The company is facing several challenges, including declining profits from filling prescriptions due to lower reimbursement rates and increased competition from companies like Amazon. Additionally, the front-end sales of drugstores, which include snacks and household staples, are under pressure from larger competitors such as Target and dollar stores.
The financial strain on Walgreens is evident. The company’s shares dropped sharply in pre-market trading on Thursday following the announcement of a reduced profit forecast for 2024. Over the past year, Walgreens’ shares have plummeted by over 45%.
“We continue to face a difficult operating environment, including persistent pressures on the U.S. consumer and the impact of recent marketplace dynamics which have eroded pharmacy margins,” Wentworth said.
In its latest earnings report, Walgreens revealed that sales at stores open for at least a year had decreased by 2.3% compared to the same quarter the previous year. The company attributed this decline to a challenging retail environment. Furthermore, Walgreens’ retail margin was negatively impacted by increased promotional activity and higher shrink levels, which refer to the loss of inventory due to factors like theft.
The upcoming closures are a critical part of Walgreens’ efforts to streamline operations and return to profitability. As the company navigates this period of significant change, it will be essential to monitor how these strategic decisions impact its long-term business performance and competitive standing in the pharmacy sector.
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