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Walgreens’ decision to close thousands of stores could help it in the long run, but that strategy could lead to mixed effects on consumers and its business.
Chedly Louis, Moody’s vice president of corporate finance, said that there is good and bad in that resolution.
“While the closures may reduce access to Walgreens, they could also lead to cost savings,” Louis said.
Last week, the pharmacy giant reported quarterly earnings in which it said that it was continuing to face a “difficult operating environment,” largely due to “persistent pressures” impacting U.S. consumers and the healthcare industry more broadly.
To better manage its underperforming stores, the company’s chief executive officer, Tim Wentworth, told investors during its earnings call in June that the company would begin to put into play a “multifactor optimization program,” that would aim to “reposition” its stores to operate more efficiently.
“It could potentially mean that Walgreens just becomes a smaller but more profitable player,” Louis said.
In March, Deerfield, Illinois-based Walgreens said that it had recorded a quarterly net loss of $5.9 billion, due to the sale of VillageMD. At the time, the chain said that it planned to close 160 of the VillageMD clinics due to unprofitability.
Walgreens, like other competitors such as Rite Aid and CVS, is not alone in its efforts to navigate an unfavorable consumer environment that has gnawed at pharmacy margins as shoppers wrestle with pesky inflation.
In early May, Rite Aid said that it had closed 500 of its stores as it grappled with a revenue decline, high debt, and increased competition. The drugstore chain, much smaller than Walgreens, once boasted 2,000 locations before it filed for Chapter 11 bankruptcy protection in October 2023.
But even so, Walgreens, a much bigger player, may have a more significant impact on consumers as it downsizes. According to Moody’s Louis, it is likely that consumers will feel the impact of not being able to conveniently fill their prescriptions more immediately.
And to the extent that pharmacy competitors are more conveniently located, that could reduce prescription volume at Walgreens longer term, Louis added.
“The impact on consumers will depend on the location of the closed stores and the availability of alternative pharmacies,” she said.
Notably, Walgreens’ healthcare segment is one facet of its business that helped it offset expenses during its latest quarter. Pharmacy sales for its U.S. unit rose by 4.4% during the latest quarter. Meanwhile, international sales jumped by 5.8%, led largely by Boots, the company’s U.K. subsidiary.
There is a “symbiotic relationship between Walgreens and the consumer,” Louis said, and while Walgreens may not “necessarily want to take away access,” poor performing locations are not worthwhile.