As part of cost-cutting measures designed to save approximately $3 billion before 2021, CVS Health will close 70 stores in 2017. The store closings should provide a $265 million cost savings benefit to CVS, according to a statement from Dave Denton, EVP and CFO of CVS.
The store closings are the first step in the three-pronged savings initiative, Denton revealed during CVS Health’s annual Analyst Day event.
As a second step, CVS aims to enhance the efficiency of corporate shared services, which involves consolidating similar activities across business units with the goal of reducing labor costs 15% to 20% for relocated activities.
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The final step, of optimizing the pharmacy platform, is expected to save CVS $700 million to $750 million per year. This process involves redistributing various aspects of pharmacy workload to better maximize script fulfillment capacity through the use of process redesign and technology.
Taking on 1,600+ Target pharmacies in a $1.9 billion deal that ramped up competition with Walgreens has definitely widened CVS Health’s reach, but it’s clear the pharmacy is now trying to pull back on its spending, especially with the brand letting 600 corporate employees go to close out 2016. Additionally, now that the proposed Walgreens-Rite Aid merger has gained new momentum with the planned sale of 865 stores to Fred’s Pharmacy, CVS faces the prospect of another competitor gaining a national store footprint.
Although the cost cuts have come along with the looming threat of tighter drug price regulations, the brand emphasized during the Analyst Day that its integrated model of health care services, which includes retail pharmacy, pharmacy benefit management and clinical care, will remain highly competitive.
“We own the last mile of service in the delivery of health care,” CVS Health CEO Larry Merlo said during the event. “Retail pharmacy is quite often the front door to health care, with the highest frequency of patient interaction. The face-to-face interactions between patients and our 30,000 pharmacists and clinicians provide us with an unmatched ability to help change consumer behavior and drive better health outcomes at a lower cost.”
