MW The drugstore industry is struggling. Here's what could be in its future.

By Bill Peters

Nearly a third of the U.S. retail pharmacies that were open from 2010 to 2020 had shuttered by 2021, study finds

During an earnings call in June, Tim Wentworth, the chief executive of Walgreens Boots Alliance Inc., said the way that pharmacies did business was "not sustainable" and required new approaches amid pressures from inflation, competition and drug-industry middlemen that have prompted industrywide store closures.

But as the drugstore chain $(WBA)$ prepares to go private and its rival CVS Health Inc. $(CVS)$ experiments with smaller stores, some analysts and researchers see a possible future with even fewer pharmacies and more online or at-home services - one that raises bigger questions about consumer access.

"I do think we're going to see more closures, and more closings in neighborhoods that need pharmacies most," said Dima Qato, a professor at the University of Southern California who focuses on pharmacies and public health.

Qato said that physical pharmacies still play an important role for communities, and aren't close to going extinct. While things like at-home testing and online prescribing and dispensing could become more common, they likely wouldn't be available to everyone.

"I think they're going to be higher-cost, more convenient [and] tailored to a specific segment of the population that has more discretionary income or has private insurance," she said.

Walgreens has been a public company for nearly a century. But last week, the drugstore chain said it had agreed to be acquired by an entity connected to private-equity firm Sycamore Partners in a $10 billion deal that would take it private.

The deal, expected to close in the fourth quarter of this year, gives Walgreens 35 days to consider other bids. Mizuho analysts, in a note this month, said they didn't believe there were other buyers.

Wentworth, in a statement announcing the deal, said that while Walgreens was making progress in turning itself around, "meaningful value creation will take time, focus and change that is better managed as a private company." The company will continue to do business under the Walgreens and Boots names, and will keep its headquarters in the Chicago area.

Days prior to the announcement, some reports said Walgreens - which also runs Boots stores largely in the U.K., a German distribution business, and a healthcare segment that includes VillageMD - could eventually break apart if it went private. Last year, the Wall Street Journal reported that CVS, after spending more than a decade trying to bulk up with acquisitions, was also weighing a possible breakup.

But along with concerns about the performance of Aetna, the health-insurance giant that CVS bought in 2018, analysts point to deeper troubles within the drugstore business overall.

There's fading demand for COVID-19 vaccines. Inflation and the rise of e-commerce have weighed on demand for the things drugstores sell that aren't drugs. Concerns about theft, which Walgreens at one point appeared to walk back, put many items in drugstore aisles behind glass, sometimes inconveniencing customers.

Amazon.com Inc.'s $(AMZN)$ own efforts to move into the pharmacy business - they largely offer generics right now - and competition from supermarket pharmacies, which have other things in other aisles to make money, also represent threats.

"If you walk into pharmacies in cities today, it's a pretty tough experience, with how much is locked behind a cabinet, to press a button to get somebody to come out and open the cabinet for you," Amazon CEO Andy Jassy said last year.

There are also rent costs, and pharmacists who are increasingly stretched thin and have demanded better pay for complicated work. And specialty drugs - often more expensive medications that have driven pharmacy dollar growth over the past decade - are often filled at specialty pharmacies rather than retail ones, Evercore ISI analyst Elizabeth Anderson said.

Pharmacy-benefit managers, or PBMs - which act as intermediaries between drugmakers, pharmacies and insurers, negotiate drug prices and steer people toward certain drugs and preferred pharmacies - have cut reimbursement rates that pharmacies get for dispensing drugs. Those middlemen can push rates lower in exchange for preferred status in different areas, or to keep their own costs down.

"That sort of situation has been repeated for many years running," Anderson said. "But that has caused some pretty significant profit pressures at pharmacies over time."

After years of consolidation, the three biggest PBMs handle nearly 80% of prescriptions filled in the U.S., according to a Federal Trade Commission analysis last year. Those PBMs, the report said, "exert substantial influence over independent pharmacies, who struggle to navigate contractual terms imposed by PBMs that they find confusing, unfair, arbitrary, and harmful to their businesses."

As those pressures mount, more pharmacies have closed. A study by Qato and other researchers, published in Health Affairs in December, found that 29.4% of the 88,930 U.S. retail pharmacies that were open from 2010 to 2020 had shuttered by 2021.

"The risk for closure for pharmacies in predominantly Black and Latinx neighborhoods was higher than in White neighborhoods," they wrote. "Independent pharmacies were at greater risk for closure than chain pharmacies across all neighborhood and market characteristics."

"Policymakers should consider strategies to increase the participation of independent pharmacies in Medicare and Medicaid preferred networks managed by PBMs and to increase public-insurance reimbursement rates for pharmacies that are at the highest risk for closure," they added.

Over the weekend, CVS said that it would open at least a dozen smaller CVS stores - with only the pharmacies and some limited over-the-counter products - over the next year. Those locations will average less than 5,000 square feet in size.

A CVS representative said over email that the new pharmacies "will be introduced in select neighborhoods to help bridge gaps in care and make it easier for patients to access medications, immunizations, and other pharmacist-provided healthcare services." The company did not respond to requests for more information about those stores.

CVS said it is still opening some traditional pharmacy stores, as well as those inside Target $(TGT)$ locations. But BofA analysts, in a research note on Monday, noted that the company plans to close 270 stores this year, after 800 closures over the last three years.

Still, they reacted favorably to CVS's new smaller locations.

"While CVS is in the early stages of rolling out new stores, the smaller store format can lower rent and improve working capital, driving better profitability per store over time," the BofA analysts said. "The announcement is consistent with management's initiatives on driving improvements within the segment.

"Without the pressures of lagging front-store growth, the company can focus on improving the core pharmacy supported by additional value-added services," they added.

Along with smaller stores, more services are circumventing the traditional pharmacy or going straight to patients' homes. Novo Nordisk $(NVO)$ this month announced a new service that sends weight-loss drug Wegovy to patients' doorsteps, after Amazon last year said it would offer home delivery of some Eli Lilly & Co.'s $(LLY)$ diabetes and obesity medications. Wellness platform Hims & Hers Inc. $(HIMS)$, meanwhile, wants to bring its customers at-home lab testing.

Some of those trends could offer foreshadowing into the future of prescriptions. Evercore's Anderson said 13,000 square-foot stores might give way to smaller stores with little more than a dispensing counter. She said some pharmacies could evolve into something resembling takeout-focused restaurant ghost kitchens that would fill prescriptions quickly and do local delivery.

But Anderson added that nobody had yet settled on which of those newer approaches might work. And she noted that after years of shrinking margins in the industry, further cuts could only help the bottom line so much at this point.

"Every organization has costs that can be cut," she said. "But after years of that, that's very hard to offset with cost cuts elsewhere."

-Bill Peters

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March 13, 2025 13:42 ET (17:42 GMT)

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