Walgreens Considers Closing 25% of Stores Amid Consumer Price Sensitivity

Challenges in the retail environment and the pharmacy industry have led Walgreens Boots Alliance to consider closing as many as 25% of its U.S. retail stores.

These Walgreens stores do not contribute to the firm’s adjusted operating income, and the company expects that a “significant portion” of these underperforming stores will be closed over the next three years, Walgreens Boots Alliance CEO Tim Wentworth said Thursday (June 27) during the company’s quarterly earnings call.

For the remainder of those underperforming stores, the company will take measures to return them to profitability but may contemplate closing them too if their performance does not improve, Wentworth said on the call.

“While it is not an easy decision to close a store, we will work to minimize customer disruptions and, importantly, as we have done in the past, we intend to redeploy the vast majority of the workforce in those stores that we close,” Wentworth said during the call.

In addition to closing stores, Walgreens Boots Alliance is reevaluating its product assortment, replacing some brands with its own brands or those of preferred partners, and accelerating its digital and omnichannel offerings “to meet our customers when, where and how they want to engage,” Wentworth said on the call.

Walgreens Boots Alliance has been impacted by a worse-than-expected U.S. retail environment and recent pharmacy industry trends, the company said in a Thursday earnings release.

On the retail side, the company pointed to continuing pressures on the U.S. consumer. The company has seen increased promotional activity and higher shrink levels, according to the release. These factors have led to lower gross margin, the firm said in a presentation released Thursday.

“Our customers have become increasingly selective and price sensitive in their purchases,” Wentworth said during the call. “In response, we invested in targeted promotion and price decisions, which have driven traffic and will generate improved customer loyalty, but they weigh on near-term profitability as we refine our approach.”

The challenges in the pharmacy industry include marketplace dynamics that have eroded pharmacy margins, per the release. Wentworth said during the call that pricing dynamics have been negatively impacted by increased regulatory and reimbursement pressures and demand growth that remains lower than pre-pandemic levels.

Despite pressures on the segment, Walgreens Boots Alliance remains focused on retail pharmacy — its core business — and believes that business is “central to the future of healthcare,” per the release.

“The retail pharmacy experience will be more important to the healthcare industry in the years ahead, but it will evolve,” Wentworth said during the call. “With widespread demand for convenient healthcare solutions, including chronic diseases and nationwide labor shortages, the pharmacy and pharmacists have never been more important.”

For all PYMNTS retail coverage, subscribe to the daily Retail Newsletter.