Walgreens will close 1,200 stores, hopes for turnaround: NPR

Walgreens will close 1,200 stores within three years, the company announced Tuesday.

Justin Sullivan/Getty Images/Getty Images North America

Hide caption

Toggle label

Justin Sullivan/Getty Images/Getty Images North America

Walgreens plans to close 1,200 stores over the next three years, the pharmacy chain said Tuesday. This is part of the company's turnaround plan as it faces retail competition and lower prescription payouts.

Chief Executive Tim Wentworth said about a quarter of the company's stores were unprofitable. Walgreens is on a $1 billion cost-cutting spree. The company has already closed some branches, changed management and renegotiated its contracts with insurers.

Walgreens, which also owns British drugstore chain Boots, reported a net loss of $3 billion in its most recent quarter. This was actually better than expected, with sales growing 6%.

Walgreens isn't the only major pharmacy chain attempting a turnaround. Rite Aid emerged from bankruptcy last month; CVS has also closed stores and is reportedly considering a separation to reverse mergers with insurance company Aetna and pharmacy benefits manager Caremark.

The convenience store portion of the pharmacy chains has been losing customers to Amazon, Walmart, Costco, grocery stores and dollar stores. Many of these competitors also sell prescriptions and thus also compete for pharmacy customers.

Pharmacy chains have expanded to thousands of locations over the years, signing long-term leases for expensive corner locations. But many shoppers criticize the quality of the stores and complain about a lack of staff and the inaccessibility of items, which are locked to protect against theft. Pharmacies, for their part, complain about declining profits when filling prescriptions and cite dramatic declines in reimbursement rates.

Given these challenges, CVS and Walgreens have looked elsewhere for profits. They have been trying to add primary care clinics, a project that takes a lot of time and money. The chains have also proposed new payout structures for prescriptions, with Walgreens warning Tuesday that it would be “prepared to exit a line of business if it doesn't make sense.”

“I'm very confident that over a two- to three-year period, we will have redefined the framework for reimbursement discussions,” Walgreens CEO Wentworth told investors on Tuesday.

He also added that Walgreens is focused on adding more private label products to its chain. This tactic has been successful for Boots in the UK, although it hasn't been as successful in the US so far. Wentworth also said the chain will work to rehire workers from stores that will close, adding: “Many of our actions during this turnaround will take time.”