Pharmacy Closures Are Disrupting Consumers – Here’s Why It’s Happening

Is this the end of the traditional pharmacy? Recently, Rite Aid, CVS, and Walgreen’s have announced significant store closings.?Rite Aid plans to close 500 stores (24%), CVS 900 (10%), and Walgreen's 1,200 (13%). What is driving these closures??Simply put, the brick-and-mortar stores are not profitable.?Let’s take a closer look at the main reasons why this is happening.

Shifts In Consumer Behavior

Customers are shopping for pharmacy services online - some with next day delivery - and more people are utilizing mail order prescriptions.?This has translated into lower foot traffic and the need for physical retail locations. The pandemic certainly exacerbated this trend when ordering services online became the norm.

Overexpansion

Drug store chains have been aggressively expanding for years.?For example, in my suburban area, there are eight, yes eight, CVS stores within a few miles of my house.?Who made that decision??Doesn't this have to drive down profitability per store? It is hard to imagine any market analysis justifying that high a concentration of stores in such proximity to one another.?This level of market saturation is not sustainable. Overexpansion reflects a past growth at-all-costs strategy that is much less relevant in today's economy.

Economic Pressures

Like most industries, retail pharmacy is feeling the effects of economic pressures. Rising costs due to inflation, and labor shortages have put the squeeze on budgets across retail.?For some of the same reasons, Pharmacy Benefit Managers (PBM's) have cut reimbursement rates paid to pharmacies for prescription drugs. PBM's are intermediaries that negotiate with drug manufacturers and pharmacies on drug prices. These points have forced companies to make tough decisions about underperforming stores.?

Increased Competition

With low entrance into the industry, the competition in the retail pharmacy space has intensified. Giants such as Amazon and big-box chains Walmart, Costco, and Target now all offer pharmacy services alongside a range of other products.?The convenience factor of one-stop shopping for groceries, household goods, and prescriptions is enticing to consumers. This has drawn customers away from traditional, standalone pharmacies.?

The Impact on Consumers

These closures disrupt consumers, especially patients who rely on these pharmacies for prescriptions. They should receive notice from the pharmacy itself that they will be closing. Patients will then need to find another location, ensure it is in their insurance network, and transfer their prescriptions.?This can create delays in receiving medications and prices may vary. Ideally, consumers want a convenient, nearby location that meets their needs.?This is not always an easy find, especially in smaller towns and rural areas where there are fewer options. This problem can be much greater for seniors or those who are medically vulnerable, especially if they are uncomfortable or unfamiliar with online services.

The Path Forward

These closures highlight a transformation in the pharmacy industry, prompting these companies to reevaluate their business models and strategies.?Moving forward, these companies will have to adapt to changing market conditions and evolving consumer preferences. How will pharmacy chains differentiate from competitors to drive consumers into their stores??What is their competitive advantage? What is their value proposition? Are they using robust, accurate market analyses??What is their true addressable market??As the pharmacy landscape evolves, companies will need to rethink how they serve their communities in a way that’s both profitable and consumer friendly.

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