Drugstores across the United States are facing serious challenges, with Walgreens at the forefront of the struggle. Over the past five years, Walgreens’ stock has dropped more than 80%, making it one of the worst-performing stocks in that period.
The company is now closing 1,200 stores, around 15% of its total locations, and exploring a deal with private equity firm Sycamore Partners to take the company private, according to a report from The Wall Street Journal. Both Walgreens and Sycamore declined to comment.
Walgreens’ core issue is its reliance on a more traditional pharmacy model compared to CVS, its larger competitor. CVS benefits from greater scale, giving it stronger negotiating power with insurers and pharmacy benefit managers (PBMs).
PBMs, which manage drug reimbursements and negotiate rebates with drugmakers, have been cutting rates to increase their own profits, Ffurther squeezing Walgreens’ margins.
In addition, CVS has diversified its business by merging with health insurance giant Aetna and its own PBM, Caremark, creating a more stable revenue stream. Meanwhile, Walgreens remains heavily dependent on pharmacy sales and its retail segment, which accounts for 26% of its U.S. retail pharmacy revenue compared to CVS’s 21%.
However, the retail segment is also struggling, with more consumers turning to online retailers like Amazon or big-box stores such as Walmart and Costco for snacks and household items.
CVS faces similar challenges, including store closures and pressure on its pharmacy business, but its health care diversification has helped offset some of these issues. Still, the company is exploring structural changes, including the potential to split up its operations.
The broader U.S. pharmacy landscape is in turmoil. A study published in Health Affairs found that nearly a third of all pharmacies closed between 2010 and 2021. These closures disproportionately impact Black and Latino neighborhoods, with independent pharmacies being twice as likely to close as chains due to exclusion from PBM networks.
“Closures may widen health disparities in access to essential pharmacy services, such as vaccinations and medications for conditions like HIV prevention or opioid use disorder,” said Jenny Guadamuz, an assistant professor at the UC Berkeley School of Public Health and co-author of the study.
In response to mounting pressure, Walgreens and other pharmacy chains must adapt to shifting market dynamics. Whether Walgreens can recover remains uncertain, but its potential privatization may mark a significant turning point in its strategy.
Meanwhile, the broader impact of pharmacy closures underscores the urgent need for systemic changes in the industry to ensure equitable access to critical health services.
