American drugstores are disappearing from street corners, with big chains Walgreens and CVS closing hundreds of locations and independent pharmacies struggling to survive.
The reshaping of a ubiquitous part of the retail landscape reflects gathering pressures inside stores.
At the rear of the store, business at pharmacy counters is being squeezed by stingier drug reimbursement rates and pharmacist wages. In the aisles, sales of everything from greeting cards to cosmetics are feeling the effects of cut-price competition.
CVS, the largest pharmacy chain by store count, has shut 900 stores in the past three years and intends to close another 270 in 2025. Walgreens has shrunk its US footprint by 1,000 stores in the past six years and plans to pull the plug on as many as 1,300 more in the next three years. Smaller rival Rite Aid exited bankruptcy proceedings in September offering dozens of surplus properties for lease.
Wall Street has taken a dim view of pharmacy operators’ prospects, with shares of parent companies CVS Health down more than 40 per cent and Walgreens Boots Alliance off more than 60 per cent in 2024.
“The whole drugstore four-wall economic model is collapsing on itself, in my opinion,” said Josh Cummings, a portfolio manager at Janus Henderson Investors.
Retrenchment among US drugstores has also sent ripples through commercial property markets and caused public health officials to worry about the spread of “pharmacy deserts” — areas without convenient access to medicines — often in poor urban and rural areas.
Drugstores received a boost as testing and vaccination hubs during the Covid-19 pandemic. But as the disease’s virulence fades, structural problems have re-emerged for the nation’s pharmacies.
Dispensing prescription drugs is a $621bn business, according to the Drug Channels Institute, and it drives about three-quarters of US pharmacy sales. The profitability of the business depends on a complex web of payments involving patients, pharmacies, drug wholesalers and health insurance intermediaries known as pharmacy benefit managers.
The benefit managers have for years pushed for lower reimbursements paid out to pharmacies for the prescriptions they fill, said Elizabeth Anderson, analyst at Evercore ISI. This has continually reduced Walgreens’ gross profit margin by more than half a percentage point each year, she said.
Drugstores also have relatively high labour costs with pharmacists who can earn more than $125,000 a year, Anderson said. Pharmacists, complaining of pressure to boost sales, have been organising a labour union.
Chain drugstores expanded aggressively early in the century through construction and acquisition, leaving more than 60,000 pharmacies across the country.
“I think most of us knew . . . that retail pharmacy was largely overbuilt for where the future was going to be, particularly given the possibility of technology, home delivery and so forth,” Tim Wentworth, chief executive of Walgreens, said in June. Walgreens Boots Alliance, which also owns UK pharmacy chain Boots, is now in talks to sell itself to private equity firm Sycamore Partners.
CVS Health, the parent of the namesake pharmacy chain, also has an in-house benefit manager, shielding itself from a portion of drug reimbursement pressures. But it still must negotiate with outside managers as well.
CVS pointed to factors including population shifts, consumer buying patterns and pharmacy density to inform decisions to shut stores. Even as it closes hundreds of stores next year, it plans to open almost 30 new locations, including some inside of Target, the mass merchandiser where CVS already operates pharmacies.
“We’re closing locations strategically to better meet consumers’ health, wellness and pharmacy care needs — as announced more than three years ago — not in reaction to industry pressures,” CVS said.
Drugstores have long competed with pharmacies housed in supermarkets and at Walmart, the US retail giant. The latter intends to launch same-day home medicine delivery nationwide by the end of January.
Amazon, which purchased online pharmacy PillPack in 2018, is also rolling out same-day drug deliveries to almost half the country in 2025. “We’re building a modern pharmacy; what we like to think of as a pharmacy in your pocket,” Hannah McClellan, vice-president of operations, product and technology at Amazon Pharmacy, said at a press briefing earlier this year.
Drugstores also face intensifying competition at the “front of store”, where items as varied as over-the-counter medicines, toothpaste, snacks and stationery are sold — usually at higher prices. Some products are locked behind plastic to deter theft, creating an inconvenience that can curtail sales.
“The pricing is a lot more competitive at Amazon or even a grocery store or mass merchandiser, and they really haven’t done much to improve their value positioning,” said Mike Blackburn, an executive vice-president at RetailStat, a retail industry research company.
The number of pharmacies peaked in the middle of the past decade at about 66,000, according to a study published this month in the journal Health Affairs. There was considerable turmoil in the sector, however: of pharmacies that operated at any point in the previous decade, 29 per cent had closed by 2021, according to Dima Qato, one of the study’s authors.
The National Community Pharmacists Association, an Alexandria, Virginia-based trade group, estimated that independent community pharmacies totalled 18,984 locations in June, down from 19,432 the year before.
“I don’t know how this is going to shake out, to be honest,” said Christine Mastandrea, chief operating officer at Whitestone Reit, a commercial landlord with tenants that include Walgreens. “I know a lot of corners are going to go for sale.”
