The retail pharmacy sector has struggled in recent years, with significant store closures and bankruptcies. From 2010 to 2021, nearly 30% of drug stores shut down, according to a study by Health Affairs. Last year, Rite Aid even filed for bankruptcy. However, experts believe the industry may finally be on the road to recovery.
At ICSC New York 2024, industry leaders discussed the challenges facing the pharmacy sector, including Ethan Chernofsky, SVP of Marketing at Placer.ai; Tonya Creekmore, SVP of National Accounts at Brixmor Property Group; Meghann Martindale, Principal and Director of Market Intelligence for Retail at Avison Young; and Ian Schroeder, SVP at CBRE.
Why Are Drug Stores Closing?
The wave of closures is not due to poor retail sales, but rather issues in the pharmacy side of business. According to Martindale, while pharmacy locations show strong sales, they are often not profitable.
“The sales are incredibly strong, but the pharmacy side is where the struggles lie,” she explained.
This issue spans across all major drug store chains, including CVS, Walgreens, and Rite Aid. These companies are still working to find a sustainable business model for the pharmacy segment.
The competition from large retailers like Walmart and online giants like Amazon is also contributing to the decline of drug stores.
Have Store Closures Hit Their Peak?
Schroeder believes the worst may be over for the pharmacy sector. While 30% of closures is significant, he feels that many of the chains have either reorganized or are now acknowledging store closures. “I feel like we’ve gone through the worst of it,” he said, expressing optimism that this trend will not continue. He noted that pharmacies remain vital in many communities, as many people still prefer visiting a pharmacist over an urgent care facility, offering some hope for the industry’s future.
Creekmore added that while drug stores may not disappear, they will likely undergo significant changes. Walgreens, for example, is reportedly in talks to sell its brand to private equity firm Sycamore Partners. “That will have an enormous impact,” she said, predicting that the sector would evolve in terms of both business operations and real estate.
Which Areas Are Most Affected?
The panelists discussed the geographic impact of drug store closures. Schroeder pointed out that rural areas are hit hardest, as many people in these communities rely on their local pharmacy as a first line of defense against illness. “When a pharmacy closes in rural America, it’s a significant loss for the community,” he said.
Martindale agreed but also noted that urban areas face challenges. “It might not seem like a big deal to travel 10 blocks to a pharmacy in an urban area, but it’s actually a considerable inconvenience,” she pointed out.
Winning the Competition: The Biggest Challenge Ahead
Looking to the future, the key challenge for drug stores will be how to compete with online retailers and large box stores like Target and Walmart. The good news for CVS, Walgreens, and Rite Aid is that wellness products are their fastest-growing sales segment. However, Chernofsky noted that other retailers, especially grocery stores, are also capitalizing on this trend.
“The issue isn’t just the pharmacy anymore; it’s the front-of-house experience, which is also shifting,” Chernofsky said.
The rising popularity of health and wellness products in grocery stores means that pharmacies will need to adapt.
Additionally, drug stores are often priced higher than big box stores for similar items. Chernofsky raised the question,
“Is it okay to pay $2 to $3 more for a product in a drug store if I don’t need to be there?”
For many consumers, the answer will depend on convenience and the store’s offerings.
To survive, pharmacies will need to optimize their retail footprint, focusing on having the right locations in the right areas, according to Chernofsky.
Source: GlobeSt.