Following its purchase of more than 1,900 Rite Aid stores in September 2017, Walgreens will shutter nearly 600 locations. Most of the closures will be Rite Aid stores, and many will be located within one mile of existing Walgreens stores, according to The Daily Telescope.
The announcement comes at a turbulent time in pharmacy retail: Walgreens competitor CVShas reportedly bid $66 billion for the health insurance company Aetna, and Amazon appears to be interested in this vertical as well. The pure play giant has secured pharmacy licenses in 12 states.
“Right-sizing the estate is important as Walgreens’ front-end business continues to struggle, driving rollout of beauty offers (now in 2,900 stores) to differentiate and encourage sales,” said Michael Rogosa, Global Research Director at Planet Retail RNG in commentary provided to Retail TouchPoints. “With Amazon considering the OTC [over the counter] space, Walgreens has rapidly expanded its mail operations in response.”
Store Closures To Begin In Spring 2018
Walgreens has carried out a “complete review of its expected combined U.S. store portfolio to determine the scope of a program to optimize locations,” according to a Walgreens press release. The store closings are expected to take place over 18 months beginning in spring 2018. The retailer anticipates cost savings of approximately $300 million per year from the closures, with the benefits to be fully delivered by the end of fiscal 2020.
Following the failure of its long-planned merger with Rite Aid, in part due to antitrust concerns from the U.S. Federal Trade Commission, Walgreens moved to purchase a significant portion of its rivals assets. In addition to the 1,900+ stores, the $4.375 billion cash deal included three distribution centers and related inventory. Integration of the Rite Aid stores is expected to take three years and cost approximately $750 million, to be reported as acquisition-related costs. Walgreens also plans to spend $500 million of capital on store conversions.
Walgreens is smart to focus on its in-store experience, according to Planet Retail’s Rogosa: “We believe Walgreens’ competitive edge over Amazon will come through focusing on in-store supplementary pharmacy services for patients seeking health advice and guidance,” he wrote. “Reinforcing customer loyalty and community within its pharmacy sphere is crucial. High beauty segment margins will underpin forward growth, though Walgreens will need to add personalization and engaging services to protect the segment from online incursion.”