Walgreens to close 'significant' number of struggling US stores, CEO says
One out of every 4 stores in the U.S. is underperforming, Walgreens said.
Walgreens plans to close a large share of its U.S. stores over the next three years, Chief Executive Tim Wentworth said on a conference call with industry analysts on Thursday.
Wentworth described a quarter of the company's 8,500 stores as "underperforming," saying the health care giant would close a "significant portion" of those locations. The exact number of closures is still being finalized, Wentworth said.
Walgreens will make changes at the remainder of the struggling stores in an effort to revitalize them, Wentworth said. "We will continue to consider closure if they don't improve," he added.
The announcement arrives nearly seven months after the company embarked on a wide-ranging review of the business in response to flagging consumer spending and adverse changes in the pharmacy industry.
"Everything has been on the table," Wentworth said. "We are at a point where the current pharmacy model is unsustainable."
The company reported $28.5 billion in revenue over the three months ending in May, which amounted to a slight increase compared to the same period a year ago, an earnings release on Thursday showed. The results nevertheless underperformed expectations, the company said.
The recent struggles for the company's U.S. business have stemmed in part from price-conscious customers fatigued by a yearslong bout of elevated prices that have strained household budgets.
"Our customers have become increasingly selective and price-sensitive in their purchases," Wentworth said.
Walgreens has slashed prices on many of its products this year, keeping pace with discounts at other major retail chains like Target and McDonald's. Last month, Walgreens announced discounts for 1,300 of its products, enticing customers with lower prices for many items, including miniature pretzels to coolers to gummy vitamins.
Lower prices have triggered some additional customer spending but have hurt the company's profit margins, Walgreens Boots Alliance CFO Manmohan Mahajan said on Thursday's conference call.
The company is also facing challenges within the pharmacy industry due to costly regulations and insufficient reimbursements, Wentworth said. He pointed to the relationship between the company and third-party pharmacy benefit managers, or PBMs, which act as intermediaries between insurance companies and pharmacies.
"We continue to have active discussions with PBM and supplier partners," Wentworth said.
Walgreens will seek to minimize layoffs and retain workers as it cuts stores, Wentworth said. "We intended to redeploy the vast majority of the workforce at the stores we close," he added.
The company, based in Deerfield, Illinois, employs about 240,000 people nationwide. In 2021, the company raised the minimum wage for staff to $15 per hour.
On Thursday, Walgreens lowered financial expectations for the forthcoming quarter. Still, Wentworth said he remains optimistic about the company's future.
"I'm at Walgreens today because I believe in the future of retail pharmacy and particularly our future," he said. "Human-to-human interaction is an imperative in healthcare and the core foundation of our business."