As a consumer, you likely expect your corner drugstore to be there when you need to pick up everything from prescriptions to shampoo. But nowadays, you might find that it’s closed.
In October 2023, Rite Aid, one of the largest drugstore chains in the country, filed for Chapter 11 bankruptcy. Since then, the company has been closing hundreds of stores. Other major chains, including Walgreens and CVS, have also been downsizing their brick-and-mortar locations.
Here’s why, and what to expect in the future:
Business Model Evolution
According to Peter C. Earle, a New York City-based economist for the American Institute for Economic Research, the corner drugstore has become a victim of its own success.
“Any business with large margins is going to attract competitors sooner or later,” Earle says. “The one-off proprietor-owned drugstores fell victims to drug chains, which through economies of scale squeezed revenue and profit out of falling prices and higher sales volumes.”
It was then only a matter of time before online pharmacies and mail-order health insurance plans got rid of the brick-and-mortar overhead, Earle says, compressing prices even further while still eking out profits via even greater economies of scale.
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Therefore, national drugstore chains just may be following the same downward trajectory as neighborhood bookstores, hardware stores, record stores and camera shops. They exist, but to a lesser degree.
Increasing Theft
Jeff Reisig, district attorney for Yolo County, California, says he has witnessed the rapid rise in drugstore theft over decades, even when official statistics don’t support it. The reason, he says, is that management, workers, security guards and shoppers aren’t calling the police and filing reports when it happens.
“Everyone on the front line knows there’s massive underreporting of theft, which affects the data,” Reisig says. “Drugstores are in crisis mode. It’s become dangerous for team members and customers. Closing a store becomes a business decision that’s easy to make. I was just with Walgreens executives and they’re getting ready to close a slew of more California locations.”
Professionals in loss prevention, however, do see the data.
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Brian Brinkmann, chief product and marketing officer at Agilence, a loss prevention analytics software company that has clients including large pharmacy chains such as CVS, Rite Aid and Rexall, says the information they have on theft clearly points to pharmacies being a prime target. Drugstore items are in high demand for personal use and can command high resale value on illegitimate marketplaces.
“Organized theft groups or organized retail crime organizations target the controlled substances and health and beauty items such as cosmetics, over-the-counter medication and toiletries,” Brinkmann says. “These items are small, easy to steal, fetch a high resale value, don’t expire quickly and are always in demand.”
Drugstores have been trying to deter theft by locking products behind glass, but that is off-putting to customers and puts pressure on employees who have to constantly run back and forth unlocking doors. Many hire security guards, which is an enormous expense and not always effective.
“In 2021, the total costs of retail theft were estimated at between $90 billion and $100 billion,” Earle says. “In 2022, over $110 billion. Anyone wondering why toothbrushes and baby food are increasingly kept under lock and key within stores — there’s your answer.”
Expensive Lawsuits and Damages
“A handful of drug chains have become ensnared in opioid litigation, which has been extremely costly,” Earle says. “In an effort to staunch the flow of red ink, some have also taken on sizable debt to finance acquisitions, few of which have been accretive.”
As an example, in 2018, the city of San Francisco sued Walgreens for its role in the opioid epidemic. In 2022, a judge ruled that Walgreens did not provide its pharmacists with sufficient time, staffing or resources to perform due diligence on these prescriptions. In May 2023, San Francisco City Attorney David Chiu announced that Walgreens must pay the city just over $229 million to settle the case. It was a huge financial blow, causing the company to reevaluate its assets, including underperforming stores.
Rite Aid was also hit with lawsuits over its handling of prescription opioids. The resulting debt is one of the reasons the company filed for bankruptcy and a restructuring of its assets, including closing locations across the country. To deal with the debt, the company is closing 7% of its stores, with 154 on the chopping block.
Change in Shopping Behaviors
According to Linda Johansen-James, founder of International Retail Group LLC, other parts of the puzzle include the rise of online retailers and the previous health and safety closures that resulted from the COVID-19 pandemic.
“They’ve all played a significant role in shifting consumer shopping habits toward digitization,” Johansen-James says.
“Not to mention that digital shopping has the allure of convenience and efficiency that many busy consumers need. Unfortunately, brick-and-mortar drugstores are really feeling this shift, as customers increasingly favor the ease of having their prescriptions delivered directly to their homes. Using digital drugstores also eliminates the dreaded worry about whether you’ll make it to the drugstore before it closes,” she adds.
Purchasing drugstore items online and having them delivered is not as risky as ordering items like apparel and furniture that consumers want to feel in person. Toiletries, cleansers and medications are the same no matter where or how they’re bought. Additionally, with many products being available for same-day delivery, and in some markets within the hour, many shoppers find it more convenient.
Johansen-James says that some drugstore chains also opened too many stores, assuming a larger physical footprint than consumer traffic could sustain.
“That comes with the delicate dance of supply and demand,” she says. “This over-expansion, coupled with the rise of e-commerce, has led to the closure of underperforming, overlapping and dangerous locations.”
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The Future of Neighborhood Drugstores
Will neighborhood drugstores become a historical relic? Not necessarily, though much depends on the area, says Reisig, who believes that retailers will continue to shutter locations in many high-crime American cities, unless laws are changed to reduce theft.
“Unfortunately, the hardest hit stores are likely in the areas where they are needed most,” Brinkmann says. Although online shopping offers several benefits, many people still want the option to pop in for what they need.
However, this doesn’t mean all stores will disappear. Johansen-James says most large drugstore chains are recalibrating their business models for greater efficiency and to ensure that each store it keeps open serves a necessary role in its respective community.
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Why Are So Many Drugstores Closing? originally appeared on usnews.com
