CEO Exits As Drugstore Giant Walgreens Trims Store Footprint Across US and UK

Company Views Healthcare Services, Not General Merchandise Sales, As Its Growth Driver

Walgreens has nearly 9,000 stores in the United States, including this one in South Carolina (CoStar)Walgreens has nearly 9,000 stores in the United States, including this one in South Carolina (CoStar)

A change in leadership for global drugstore giant Walgreens Boots Alliance is part of a pivot by a streamlining international chain to become more of a healthcare provider than a retailer.

The Deerfield, Illinois-based chain is shutting brick-and-mortar locations in both the United States and the United Kingdom in a “location optimization” undertaken by CEO Rosalind Brewer, who just stepped down from her position. In June, the company said it planned to close 450 stores, 150 in the United States and 300 in the United Kingdom, by the end of its next fiscal year in August 2024.

Brewer is a retail veteran who held top positions at Starbucks, Sam’s Club and Walmart. But with Walgreens’ shift in focus and strategy, healthcare — not retail — is where the company is increasingly focused, Neil Saunders, a managing director at GlobalData, said in a note. In January last year, Brewer said Walgreens had begun a strategic review of its Boots pharmacy chain.

“The departure of Roz Brewer comes at a time when Walgreens is in a phase of change,” Saunders said. “The potential sale of Boots, which Walgreens would like to dispose of but is waiting for the right conditions, is a further sign of the retreat from retail. All of this must come as a disappointment to Ms. Brewer, but it also means that a different sort of experience is needed to lead the business. It is notable that the interim CEO, Ginger Graham, has a much deeper background in the healthcare and pharma industries.”

Walgreens, like its rival CVS Health, has been reshaping its real estate holdings to adapt to the changing retail landscape and to accommodate an expansion into providing healthcare services for aging Americans.

Walgreen’s didn’t respond to phone calls from CoStar News seeking comment.

Pharmacy Challenges

Pharmacy chains face several headwinds on the retail front, with business dropping as an easing pandemic means less demand for COVID-19 vaccinations. At the same time, consumers can buy items like toothpaste, over-the-counter medications and other goods at discount chains such as Walmart, Target and dollar stores. Another challenge: Target and Walmart now have their own pharmacies.

Walgreens and CVS see more growth opportunity by moving into healthcare, and they have made acquisitions to further that expansion. In the case of Walgreens, that has meant acquiring Summit Health, parent of urgent-care chain CityMD, for $8.9 billion. It also paid almost $1.4 billion to buy the remaining stake in Shields Health Solutions, a specialty pharmacy, it didn’t already own.

Walgreens has nearly 9,000 stores in the United States and more than 2,200 Boots locations in the United Kingdom.

Walgreens ranks No. 5 in terms of year-to-date, United States store closing announcements, with 149, according to the most recent data from Coresight Research. That compares to 376 closings in 2022, which ranked Walgreens No. 1 in domestic closings that year, according to Coresight.

This year so far CVS has 300 announced store closings, while Rite Aid has 38, according to Coresight. In 2022 CVS had 306 store closings and Rite Aid had 158, Coresight said.

In the United Kingdom, so far this year there are 154 announced store closings for Walgreens/Boots, with 247 closings last year, according to Coresight.

New Business Model

Walgreens has a new model for its pharmacies, according to Chief Financial Officer James Kehoe.

“Our pharmacy-of-the-future operating model will drive significant savings,” he said on a conference call to discuss the company’s third-quarter earnings.

“We are optimizing the model through our micro fulfillment centers, tech-enabled centralization of in-store activities, and tele-pharmacy solutions. These initiatives will also elevate the role of the pharmacist and improve patient engagement.”

Saunders offered some cautioned advice in that regard.

“Healthcare is a lucrative sector and Walgreens is not wrong to see it as a major part of its future playbook,” Saunders said. “However, the new permanent CEO will need to remember that it is possible to invest in both healthcare and retail. It should not be an either/or decision.”

The strategic challenges are significant as are the stakes: In a sign of drugstore chains’ financial woes, earlier this month The Wall Street Journal reported that Rite Aid was preparing to file for Chapter 11 bankruptcy protection.

CEO Exits As Drugstore Giant Walgreens Trims Store Footprint Across US and UK
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