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Getty Images; iStock; Natalie Ammari/BI
The current landscape of pharmacies in the United States is, quite frankly, disheartening.
Pharmacies are expected to be stable businesses. Approximately 70% of Americans rely on prescription medications, which generates a significant revenue stream: pharmaceutical spending in the US reached $722.5 billion in 2023. Additionally, many pharmacies provide easy access to various everyday items, from pain relievers to cosmetics. They represent one of the few remaining venues where consumers frequently shop in person.
However, even major pharmacy chains are facing severe challenges today. Recently, Walgreens announced plans to close 1,200 locations over the next three years due to around 25% of its stores being unprofitable. Similarly, CVS has shut down hundreds of outlets and revealed intentions to eliminate nearly 3,000 jobs this month as part of cost-cutting measures. Rite Aid has also faced difficulties and closed numerous stores after filing for Chapter 11 bankruptcy protection late last year.
For those pharmacies that remain operational, shelves often appear barren or poorly stocked. Many products are kept behind locked displays—good luck finding staff available to assist you with retrieving basic items like deodorant or shampoo due to widespread understaffing issues.
If you’re looking for a convenient spot to grab snacks or cold medicine nearby, you might find yourself disappointed.
The decline of pharmacies is part of a broader trend known as the “retail apocalypse,” which has worsened since the COVID-19 pandemic began. Convenience store chain 7-Eleven recently announced it would close hundreds of locations across the country. What initially seemed like a temporary fallout from lockdowns now appears entrenched within America’s retail environment—if you’re hoping for an accessible place for quick purchases like chips or NyQuil nearby, you may be out of luck.
The struggles facing pharmacies stem from multiple factors including increased online shopping and complex healthcare payment systems in America. While the pandemic temporarily boosted business through vaccine distribution and home testing kits—masking deeper issues—the long-standing problems have become increasingly apparent over time. Elizabeth Anderson from Evercore ISI noted that these challenges have been accumulating for years: “None of these things is new… but when compounded over time they reach a breaking point.”
Challenges Facing Major Pharmacy Chains
Walgreens and CVS primarily generate revenue through two avenues: dispensing prescriptions at their pharmacy counters and selling consumer goods up front.
Unfortunately for these companies both segments face mounting pressures from external forces.
The Impact of E-Commerce on Pharmacies
E-commerce growth poses significant competition: In today’s Amazon-dominated market consumers can conveniently order everything from toilet paper and pain relievers to snacks online with home delivery options often at lower prices than physical stores offer.
Moreover customers avoid frustrating experiences such as searching for an employee just so they can access locked merchandise (Amazon itself acknowledged that poor service at traditional pharmacies has benefited its business).
Cuts From Competitors Add Pressure
This competitive landscape extends beyond e-commerce giants; chain pharmacies also contend with big-box retailers like Walmart and Target along with discount chains such as Dollar General vying for budget-conscious shoppers’ attention.
As pharmacy prices rise while convenience diminishes more customers choose alternatives instead.
Cannibalization Among Chain Locations
A further complication arises internally: chain pharmacies compete against themselves too.
Over recent years Walgreens’ and CVS’s rapid expansion led them into direct competition within neighborhoods where multiple branches exist just blocks apart making profitability challenging when identical services saturate local markets.
The reality is prescriptions simply aren’t profitable anymore.
The Financial Strain on Pharmacies
Beyond rising operational costs associated with running physical storefronts—including rent expenses—and maintaining skilled pharmacist staff there’s another layer affecting revenues:
pharmacy benefit managers (PBMs).
Pain Points Created by Pharmacy Benefit Managers (PBMs)
PBS act as intermediaries between insurers who reimburse patients’ medication costs after pharmacists dispense drugs directly sourced from manufacturers.
However PBMs have been reducing reimbursement rates leading many times below acquisition costs especially concerning high-demand medications such as GLP-1s including Ozempic & Wegovy according reports by industry insiders (source here).
A Lack Of Negotiating Power For Pharmacies
“The straightforward truth remains that prescriptions lack profitability,” stated Douglas Hoey CEO National Community Pharmacists Association representing independent drugstores nationwide adding “PBM’s hold all leverage determining payment terms leaving little room left open negotiation.” He emphasized how this imbalance affects everyone—from large chains down smaller neighborhood shops alike struggling under similar constraints imposed upon them by PBM practices.“““html
In the ever-evolving landscape of healthcare, traditional pharmacies are facing significant challenges that threaten their existence. Despite their stronghold in the market, they struggle against Pharmacy Benefit Managers (PBMs), which have become increasingly influential. A notable instance occurred a decade ago when Walgreens attempted to negotiate better terms with Express Scripts, a leading PBM. This confrontation ultimately resulted in Walgreens conceding and incurring an estimated loss of $4 billion during the dispute according to reports. In contrast, CVS has an advantage as it owns Caremark, one of the top three PBMs.
The decline of pharmacy sales is creating a detrimental cycle for retail operations. Historically, Walgreens was not known for its competitive pricing or extensive product range; however, customers would often purchase additional items while picking up prescriptions. With more patients opting for mail-order medications or purchasing from grocery stores, foot traffic has significantly decreased. Jason Goldberg, Chief Commerce Strategy Officer at Publicis Groupe—a global marketing firm—remarked that “pharmacies were never designed to be appealing places for everyday shopping.” He noted that items like toilet paper were profitable only because customers visited for prescriptions.
While Walgreens did not provide comments on this situation, CVS representatives stated that they are currently in a “better position” than before. They explained that store closures initiated back in 2021 were based on factors such as demographic shifts and consumer buying behaviors. Even after these adjustments are complete, they assured that 85% of Americans will still reside within ten miles of a CVS location.
The Shrinking Landscape of Pharmacies
As pharmacies continue to close nationwide, consumers find themselves with fewer options for in-person shopping experiences. One major factor contributing to this decline is how poorly many pharmacies have managed their retail operations over time. The rise of large chain stores has eroded customer loyalty towards independent pharmacies where personal relationships could flourish between pharmacists and patrons—offering trusted advice and friendly interactions about community events like local sports teams.
Pharmacies don’t need to lose half their retail traffic for it to be catastrophic.
The overall experience at many pharmacies leaves much to be desired; quick trips have become increasingly frustrating due to long wait times and inadequate customer service caused by understaffing issues exacerbated by declining sales volumes. Brian Tanquilut from Jefferies highlighted how some chains are reducing inventory levels—limiting product variety—which further alienates customers who encounter empty shelves during visits.
Goldberg emphasized that even a mere 10% drop in foot traffic can trigger rapid declines: “You lose some customers which leads you to cut staff; then you end up with even more dissatisfied patrons.” Other convenience retailers face similar struggles as consumer habits shift away from frequent visits due partly because people no longer commute regularly or smoke cigarettes as much anymore—both factors traditionally driving sales at places like 7-Eleven.
Cyclical Trends Impacting Retail Chains
“Retail trends tend toward cycles,” remarked Saunders—a retail consultant—pointing out how drugstores once thrived while independent shops faltered but now find themselves past their peak performance entering challenging times ahead.” With ongoing store closures at Walgreens raising concerns about future viability within this sector he added: “They must establish clear growth strategies if they hope both investors’ confidence and business stability.” However he expressed skepticism regarding whether current management efforts adequately address these needs moving forward into uncertain territory ahead.”
A Cultural Shift Away From Convenience Stores
Mourning the potential downfall of corporate giants such as Walgreens may seem counterintuitive given their role in diminishing local businesses over decades—from neighborhood pharmacies down through small general stores—but it signifies another pivotal moment within American culture where spontaneous trips just aren’t what they used used-to-be anymore! What does having fewer accessible locations mean? How will society adapt when every transaction—from snacks purchased on-the-go all way through prescription refills—is conducted online?
This trend indicates troubling implications: millions may soon lack nearby access points necessary fulfilling basic healthcare needs effectively! Currently around 15 million individuals—or roughly four percent population—live without adequate pharmacy access. Reports suggest certain establishments closing down disproportionately affect communities already marginalized while rural areas risk losing vital services altogether if remaining outlets shut down entirely!
“When you eliminate essential resources like these,” said Nick Fabrizio—a senior health policy lecturer at Cornell University—“it forces residents into lengthy drives just seeking alternatives.” The ramifications extend beyond mere inconvenience—they represent systemic failures impacting public health outcomes across diverse populations nationwide!
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There are no straightforward solutions to the ongoing challenges faced by pharmacies. Steven Anderson, the CEO of the National Association of Chain Drug Stores, emphasized the “critical need” for legislative intervention regarding Pharmacy Benefit Managers (PBMs), which are currently facing increased scrutiny from government regulators. However, competitors such as Amazon continue to expand their presence in this market, while Walgreens.com struggles to establish itself as a dominant online player. Fabrizio noted that “this is a complex issue that is unlikely to improve in the near future.” As traditional pharmacies and convenience stores face closures, we may soon reflect on this period as a time when convenience was at its peak—when essential items were always just around the corner.
Emily Stewart, a senior correspondent at Business Insider, covers topics related to business and economic trends.
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