Why Your Local Drug Store is Shutting Down

In New York, major pharmacy chains are closing numerous stores: CVS plans to close 900, Rite-Aid is shutting down 500 locations, and Walgreens announced it will close 1,200 stores—around 1 in 7 of its outlets.

What’s causing this widespread closure of drug stores across the u.s.?

Pharmacy chains like Walgreens expanded aggressively during the 1990s and 2000s to outpace competitors and capture more customers. However, they are now closing stores due to changes in consumer behavior, growing competition, and evolving trends within the pharmacy industry.

In an interview with the Wall Street Journal in June, Walgreens’ CEO Tim Wentworth noted that approximately 25% of their stores are not turning a profit. The company plans to shutter underperforming locations, particularly those situated close to each other or those struggling with theft.

Retailers like Walgreens report an increase in shoplifting since the pandemic, forcing them to lock up products or close stores in high-theft areas. However, theft isn’t the sole reason for their challenges. Last year, Walgreens admitted it may have overstated the impact of theft. Meanwhile, the increasing competition and failed expansion strategies—such as acquiring primary care providers—are continuing to impact the industry negatively.

According to Wentworth, “We are at a point where the current pharmacy model is unsustainable.”

CVS, the largest U.S. pharmacy chain, closed 244 locations between 2018 and 2020. In 2021, it announced plans to close another 900 stores. More recently, CVS revealed it would eliminate around 2,900 corporate jobs. Meanwhile, Rite Aid filed for bankruptcy last year and plans to close up to 500 stores.

Changing Consumer Trends

The downfall of drug store chains can be largely attributed to declining reimbursement rates for prescription drugs, according to industry analysts.

Most of a drug store’s revenue comes from dispensing prescriptions, but profits in this area have diminished in recent years as reimbursement rates for prescription medications drop and fees increase.

The prices consumers pay for medications, and the payments pharmacies receive, are primarily controlled by pharmacy benefit managers (PBMs). PBMs negotiate rebates between drug manufacturers and insurers, but they’ve also been reducing pharmacy reimbursement rates to boost their own profits, explained Elizabeth Anderson, an analyst at Evercore ISI.

The pharmacy industry has long complained that PBMs hold too much power, which reduces pharmacy profits. However, PBMs argue that they are essential for keeping drug prices low by negotiating with manufacturers.

“If reimbursement rates continue to drop, and drug stores can’t find other ways to grow, it negatively impacts their profitability,” Anderson noted.

Challenges Beyond the Pharmacy Counter

Drug stores are also struggling on the front-end, where they sell everyday products like snacks and household items. More consumers are turning to online platforms like Amazon and larger chains like Walmart and Costco for these goods, making drug stores less profitable. In rural areas, Dollar General’s growth has hurt drug stores as well.

“The front-end struggles are similar to what other retailers are experiencing,” said Anderson.

To attract customers, Walgreens, CVS, and other chains have ventured into primary care, adding medical clinics to some of their stores. Walgreens, for instance, invested $5.2 billion in VillageMD, a primary care provider, in 2021.

However, VillageMD has not been profitable for Walgreens, which has started cutting costs. The company is closing some VillageMD clinics and plans to divest from the business.

A Tough Trade-off: Helping the Business, Hurting Consumers

While Walgreens’ store closures might improve the company’s financials, they may also reduce access to essential healthcare services.

When pharmacies shut down, some customers face longer travel distances to obtain necessary medications. Studies show pharmacy closures increase health risks, particularly for older adults who may fail to adhere to their medication regimens.

The closure of retail pharmacies often creates a gap, especially in lower-income areas. Between 2009 and 2015, about one in eight pharmacies closed across the U.S., with independent pharmacies and those serving low-income communities hit the hardest, according to a study in the Journal of the American Medical Association.

Pharmacies most vulnerable to closure are those with large customer bases relying on public insurance programs, which typically offer lower reimbursement rates than private insurance plans, along with smaller, independent pharmacies.

At Mediserv Pharmacy, a local pharmacy store in Bronx New York, we understand the impact these closures can have on our community. While large chains face challenges, Mediserv Pharmacy remains committed to serving the Bronx area with personalized care, affordable prescriptions, and accessible healthcare.

Unlike big corporate chains, local pharmacies like Mediserv Pharmacy can provide the personal touch and convenience that larger stores struggle to maintain. Whether it’s filling your prescriptions, offering over-the-counter items, or providing health consultations, Mediserv Pharmacy puts the health of our Bronx neighbors first.