Drug stores across the United States, particularly Walgreens, are facing significant challenges. Walgreens has seen its stock plummet by over 80% in the last five years, making it one of the worst-performing stocks in that period. The company is in the process of closing 1,200 stores, which amounts to approximately 15% of its locations. In a bid to address its financial woes, Walgreens is reportedly exploring the possibility of going private through a deal with private equity firm Sycamore Partners, as reported by the Wall Street Journal. Both companies have refrained from commenting on the potential deal when approached by CNN.
The core issue with Walgreens lies in its reliance on traditional pharmacy services compared to its competitor CVS. CVS, being larger in scale, has more leverage to negotiate prices with insurers and other healthcare entities. Additionally, CVS has diversified into healthcare services, a move that has proven lucrative. On the other hand, Walgreens is struggling to maintain profitability in both its pharmacy and retail segments. Declining reimbursement rates for prescription drugs, largely influenced by pharmacy benefit managers (PBMs), have eaten into the pharmacy business’ profits. Moreover, the retail segment, offering snacks and household essentials, is facing stiff competition from online retailers like Amazon and big-box stores such as Walmart and Costco.
The issue of pharmacy closures is not unique to Walgreens, as highlighted by recent studies. A significant number of pharmacies have shuttered across the country between 2010 and 2021, with a higher risk of closure in Black and Latino neighborhoods. Independent pharmacies, often marginalized by PBMs, are disproportionately affected by closures. These closures could exacerbate existing health disparities by limiting access to essential pharmacy services like vaccinations and prescribed regimens.
Amid these challenges, CVS is also navigating its own set of difficulties, including store closures and organizational restructuring. The pharmacy landscape, dominated by a few key players, is undergoing significant changes that have implications for healthcare access and equity.
