Why CVS, Walgreens, and Rite Aid Are Shutting Down Many Stores in the US

In recent years, big pharmacy chains like CVS, Walgreens, and Rite Aid have started closing many stores in the US. This has raised concerns about the future of local pharmacies and the reasons behind these closures. Here’s a look at why these companies are shutting down stores and what it means for customers, especially in areas that lack services.

The Move to Online Shopping

The COVID-19 pandemic has changed how people shop. Many shoppers now prefer buying things online, picking up items at the curb, or using delivery services like Instacart. To adapt to this change, CVS plans to close 900 stores by the end of 2024. They began this process in 2022, closing around 300 stores each year. This move is part of CVS’s plan to focus more on online services and reduce the number of physical stores.

Before closing some stores, CVS had 10,000 retail locations and still has a strong presence in many areas. The company plans to upgrade many of its remaining stores into HealthHubs, which will provide more health services in addition to regular pharmacy services.

Financial Issues and Competition

Financial problems are a big reason for the closures in the pharmacy industry. For instance, Walgreens revealed that about 25% of its US stores aren’t making money. The company, which has around 8,600 locations, has faced challenges from theft, competition, and unsuccessful growth plans. Walgreens recently announced plans to close a significant number of stores to save money and improve profits.

This issue isn’t just with Walgreens. CVS, Rite Aid, and other large chains are also dealing with financial pressures from decreasing reimbursement rates for prescription drugs. The pharmacy industry relies heavily on filling prescriptions for income, but lower payments from pharmacy benefit managers (PBMs) are cutting into their profits.

The Role of Pharmacy Benefit Managers. (PBMs)

One of the biggest challenges pharmacies face today is the role of pharmacy benefit managers (PBMs). These middlemen negotiate drug prices among pharmacies, insurance companies, and manufacturers. While PBMs say they help lower drug prices, pharmacies argue that PBMs are reducing their reimbursement rates, making it harder for them to make a profit.

Elizabeth Anderson, an analyst at Evercore IRI, noted that if reimbursement rates drop and drug stores can’t find other ways to grow, it will hurt their profits. This financial pressure has caused many pharmacies to close, especially in areas where reimbursement rates are lower, like communities with more people relying on public insurance.

Pharmacy Deserts and Community Impact

One major worry about the many store closures is the rise of “pharmacy deserts,” which are areas where people have little or no access to a nearby pharmacy. Studies show that these closures mostly impact low-income and minority communities. For example, research in major U.S. cities found that pharmacy deserts are mainly in Black and Latino neighborhoods, worsening existing healthcare inequalities.

In Boston, Walgreens faced protests after announcing the closure of several stores in areas with mostly minority residents. Local activists expressed concerns that losing these pharmacies would harm access to essential healthcare services.

The Move Toward Healthcare Services

To stay competitive, both CVS and Walgreens are shifting their focus toward healthcare services. CVS plans to turn over 1,000 stores into HealthHubs, which will provide services like mental health screenings, yoga classes, and primary care. This change aims to address the increasing demand for healthcare and help the company diversify its sources of income.

Walgreens has also invested in healthcare by purchasing a $5.2 billion stake in VillageMD, a primary care network. However, this investment has not yet brought in significant profits, leading the company to close some VillageMD locations to reduce losses.

The Future of Retail Pharmacies

The closures by CVS, Walgreens, and Rite Aid indicate a significant change in the retail pharmacy industry. As consumers increasingly turn to online shopping and healthcare services change, traditional drugstores need to adapt to survive. While these closures might help companies boost their profits, they could also negatively impact access to healthcare for vulnerable populations.

As one analyst noted, “We are at a point where the current pharmacy model is not sustainable.” For many communities, losing a local pharmacy means not only having fewer places to pick up prescriptions but also fewer options for everyday essentials and healthcare services.

A Changing Landscape

The closures of CVS, Walgreens, and Rite Aid stores across the U.S. result from several overlapping factors: financial pressures, changing consumer habits, and increased competition from online retailers like Amazon. While these decisions may help companies improve their financial stability, the impact on consumers—especially in underserved communities—cannot be overlooked.

As the retail pharmacy model continues to change, companies need to find a balance between making profits and ensuring that all communities can access the healthcare services they need. 

Sources

– “CVS Announces It Is Closing Stores For Good.” Tip Hero

– “Why Walgreens, CVS and Rite Aid are closing thousands of drug stores across America.” CNN. Nathaniel Meyersohn. June 28, 2024

– “Here’s Why Drug Stores Are Closing In Minority Neighborhoods: Walgreens, CVS And Rite Aid Shutter More Than 1,000.” Forbes. Mary Whitfill Roeloffs. January 14, 2024.

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