Walgreens plans to close about 1,200 stores over the next three years in an effort to improve earnings and increase cash flow, the struggling company announced Tuesday.
The downsizing plan by Walgreens Boots Alliance will target 500 stores during the current fiscal year, which began on Sept. 1, and comes months after Chief Executive Tim Wentworth acknowledged that about a quarter of the company’s 8,600 U.S. stores were underperforming.
The company did not specify which stores will close but said it will prioritize underperforming locations owned by the company or at which the lease is expiring. Only stores in the U.S. will be affected. Walgreens Boots Alliance also owns the Boots pharmacy chain in the United Kingdom.
Wentworth told analysts Tuesday that about 6,000 Walgreens locations remain profitable, according to the Associated Press. The company operates more than 580 stores in California, second only to Florida. The closures announced Tuesday include 300 already approved under a previous cost-cutting plan.
Walgreens is not alone in its woes — competitors Rite Aid and CVS have also been forced to reconsider their footprints and close locations amid challenging times for the industry. Rite Aid has closed more than 200 stores since filing for Chapter 11 bankruptcy in 2023.
Read more: 'My kids go to Costco now,' and other reasons Rite Aid, Walgreens and CVS are hurting
On the retail side, chain pharmacies are facing heavy competition from giants such as Amazon and Walmart, while a drop in consumer spending and an increase in theft have continued to eat into profits, analysts said. On the pharmaceutical side, they’re seeing tighter margins because of lower reimbursement rates for the drugs they sell to customers.
Much of the pharmacy pinch is rooted in the companies’ dependence on intermediaries called pharmacy benefit managers, or PBMs, that have significant control over how much pharmacies get reimbursed for the drugs they sell to customers.
Two of the largest benefit management companies, OptumRX and Caremark, are owned by insurance companies that have been looking to cut costs by pushing down reimbursement rates, which has punished the pharmacies’ bottom lines.
Chain pharmacies are also operating in an overcrowded environment, said Raymond James healthcare analyst John Ransom. Partly because of a real estate binge in the 1990s, urban communities are dotted with an excess of pharmacies, he said.
“Like most retailers, we have been facing a challenging operating environment,” Walgreens external communications manager Samantha Stansberry said in August. “These factors have resulted in a growing number of store closures across the country as we invest in our other locations to deliver a consistent customer experience.”
Read more: Walgreens woes continue with earnings miss, guidance cut and plans to shutter more stores
The plan to close stores was announced as part of the company's release of its fourth-quarter and end-of-year financial reports, which underscored its dire straits. For fiscal year 2024, which ended Aug. 31, Walgreens posted a net loss of $8.6 billion, up 180% from the previous year. Total revenue for the company rose about 6% for the year to $147.7 billion.
Investors reacted positively to Walgreens' cost-saving strategy, driving up shares in the company nearly 16% on Tuesday to $10.42. The rise, however, still left the stock down more than 61% so far this year.
“Fiscal 2025 will be an important rebasing year as we advance our strategy to drive value creation,” Wentworth said in a news release detailing fourth-quarter and full-year financial results. “This turnaround will take time, but we are confident it will yield significant financial and consumer benefits over the long term.”
This story originally appeared in Los Angeles Times.