Essential retailer closing hundreds of stores, CEO sounds alarm

One of the more pervasive trends in the retail industry is the consolidation of goods and services into just a handful of some of the largest corporate incumbents in the industry.

No longer do consumers need to go to a butcher downtown for meat and seafood, a farmer's market for produce, a drugstore for many pharmacological needs, or a department store for things like carpets, fridges, and couches.

Nowadays, it's considered an errand to go to one big box store like Target or Walmart for all your essentials; they have in-store pharmacies, sprawling grocery departments, and sometimes even salons, beauty counters, and warehouses full of appliances.

And that, of course, is if you even want to leave your house. In many cases, all of these goods can be procured online from a mammoth like Amazon which is happy to deliver your vitamins, microwave, shampoo and snacks without a second thought.

This generalization has made for a changing retail landscape indeed. Many smaller operations, like regional grocery stores and drugstores, have struggled to stay competitive.

Pair that with a post-covid rise in retail theft and employee attrition, and struggling retailers have been forced to make some difficult cuts and decisions in an effort to stay afloat.

A Walgreens Pharmacy and store closing sign is seen at a storefront entrance in New York City. UCG/Getty Images

Walgreens making some tough decisions

It's even been a rocky road for some national drugstores, which have been hit particularly hard by retail theft and organized retail crime.

Rite Aid, for example, has been shuttering hundreds of stores across the United States as it continues to face stiff competition from other giants, like CVS  (CVS)  and Walgreens  (WBA) . It filed for Chapter 11 bankruptcy in October 2023.

But those giants haven't had an easy go of it, either. Walgreens has been hit particularly hard by a rise in retail theft; many of its items are placed under lock and key, particularly in busy city areas, to prevent shoplifting.

And it's incurred significant losses from some ill-fated ventures, namely its Village MD partnership, which it has a majority ownership in. Walgreens has exited over 150 locations around the country.

"GAAP net loss for the second quarter included a $5.8 billion noncash impairment charge related to VillageMD goodwill," Walgreens CFO Manmohan Mahajan said uring the Q2 2024 earnings call, adding, "In February, we received a downward revised longer-term forecast from VillageMD management."

Walgreens closing more stores

It's not just Walgreens' outside ventures that are putting a drag on business, however. On Thursday, the drugstore revised its forward looking guidance downward, the second time it's done so this year.

"We're at the point where the current pharmacy model is not sustainable and the challenges in our operating environment require we approach the market differently. We are in active discussions ... to align incentives and ensure we are paid fairly," CEO Tim Wentworth told analysts during the Q3 earnings call.

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Management added that 100% of its profit comes from just three quarters of its stores, and it's weighing possibilities for improving the performance of those remaining 25% of stores, including closures.

Walgreens currently operates 8,600 stores, so closing up to 25% of those stores would mean up to 2,150.

“75% of our stores drive 100% of our profitability today,” Wentworth said. “What that means is the others we take a hard look at, we are going to finalize a number that we will close.”

Wentworth added that the chain is struggling with persistently high prices, which, in addition to inventory shrink, accounts for some of its financial hardships.

"The consumer is absolutely stunned by the absolute prices of things, and the fact that some of them may not be inflating doesn’t actually change their resistance to the current pricing," he said. "So we’ve had to get really keen, particularly in discretionary things."