Walgreens to Close Numerous Unprofitable Locations Amid Business Restructuring
Walgreens, one of the leading pharmacy chains in the United States, has announced plans to close a substantial number of its approximately 8,600 stores across the country. This decision is part of a multiyear optimization program aimed at restructuring the struggling business model and enhancing overall performance.

Walgreens did not disclose the exact number of stores set for closure but indicated that these closures would primarily target underperforming locations. CEO Tim Wentworth, in a call with analysts, mentioned that "changes are imminent" for the roughly 25% of stores that are not profitable. He further stated that the company's strategic review will "include the closure of a significant portion of these underperforming stores." Wentworth emphasized that the current pharmacy model is "not sustainable" and that the challenges in the operating environment necessitate a different market approach.
In an interview with the Wall Street Journal, Wentworth elaborated that the closures would focus on locations that are not profitable, those that are too close to each other, or stores struggling with theft. Walgreens revealed that the closures would occur over the next three years and that additional closures might be considered if performance does not improve. The "vast majority" of employees at affected stores will be offered positions elsewhere within the company, Wentworth added.
Stock Plummets on Weak Financial Outlook
Walgreens' shares (WBA) experienced a significant drop, falling 20% to their lowest level in decades following the announcement. The company also revised its full-year profit outlook downwards, reflecting ongoing challenges. Wentworth noted in a press release that the company continues to face a "difficult operating environment," including persistent pressures on the US consumer and the impact of recent marketplace dynamics that have eroded pharmacy margins.
Inflation has significantly impacted the drugstore business, affecting both the front-end and back-end operations of pharmacies. Wentworth highlighted that shoppers are "becoming increasingly selective and price-sensitive on their selections," and he anticipates the operating environment in the US to "remain challenging" without any expected improvement.
Walgreens reported a 2.6% increase in sales, reaching $36.4 billion for the quarter. However, Neil Saunders, managing director of GlobalData, noted that this increase is below inflation and, in some segments of the business, represents a loss of market share. Particularly troubling for Walgreens was a 4% decline in retail sales for the quarter. Saunders pointed out that the front-of-store struggles have been "exacerbated by the cost-of-living crisis," which has led customers to reduce the volume of products they buy and shop around more for the best deals and bargains.
Efforts to Lure Back Customers
In May, Walgreens slashed prices on over 1,000 items in an attempt to attract back inflation-weary shoppers turned off by high prices. However, the company admitted that this move would hurt profitability. Major drugstore chains, including CVS and Rite Aid, have been grappling with declining profits from filling prescriptions due to lower reimbursement rates and increased competition from Amazon.
The front end of drugstores, where snacks and household staples are sold, also faces competition from larger retailers like Target and dollar stores. Wentworth mentioned that Walgreens' store assortment would change, with the removal of eight national brands and the introduction of similar items produced by house brands or "preferred partners." He did not specify which brands were removed but indicated that the changes were within the health and wellness categories.
Although drugstores benefited from the pandemic with people getting Covid-19 vaccines, fewer consumers are now visiting stores. Prescription volumes are also declining as people undergo fewer elective procedures. Drugs such as Ozempic and Mounjaro, used for weight loss and diabetes treatment, have not been profitable for the chain. Wentworth told the Journal that Walgreens is losing money on filling these prescriptions.
Pivoting the business model has also proven challenging. Walgreens will no longer hold a majority stake in VillageMD, a primary care network it once planned to integrate with hundreds of its stores. The value of this merger has depreciated significantly, leading to a $6 billion writedown on Walgreens' balance sheet.
In recent years, CVS has closed about 900 locations, and Rite Aid, which filed for bankruptcy in October, closed over 100 stores. Walgreens' decision to follow a similar strategy underscores the broader challenges facing the pharmacy sector.