Walgreens Plans ‘Significant’ Store Closures, Citing Weak Consumer Spending


Walgreens is planning to close more of its roughly 8,700 stores in the United States, its parent company said on Thursday, after the retail pharmacy giant reported third-quarter earnings that fell short of analyst expectations.

The pharmacy chain also cut its profit outlook for the year, citing worse-than-expected consumer spending.

“We witness continued pressure on the U.S. consumer,” Tim Wentworth, the chief executive of Walgreens Boots Alliance, told investors during an earnings call on Thursday. “Our customers have become increasingly selective and price-sensitive in their purchases.”

As of February, Walgreens has closed 625 U.S. stores. The company did not specify how many additional stores it would close as part of its “significant multiyear” program to cut back on costs. But roughly a quarter of the pharmacy chain’s U.S. stores — those that the company doesn’t see as crucial to its long-term strategy — could be affected, Mr. Wentworth said.

The company’s shares, which tumbled more than 20 percent on Thursday after its earnings report, ended the day down about 22 percent. They have fallen 54 percent this year.

Walgreens said it was seeing signs of strain on lower-income consumers in particular, driven by high inflation and depleted savings. Last month, on the heels of a similar move by Target, Walgreens said it would cut prices on over 1,300 products in response to sluggish consumer spending.

The company’s leadership has been in flux over the past year. Mr. Wentworth joined the retailer’s parent company in October, as the drugstore operator faced weakening demand at its retail locations and after its previous chief executive resigned in September.

Neil Saunders, the managing director of GlobalData Retail, said in an email comment that Walgreens’ own strategic decisions, not just consumer behavior, were also at fault. He said the retailer should have been investing more heavily in private-label products to drive sales in a value-conscious consumer environment.

“Walgreens is a company in a tangle,” Mr. Saunders said. “Over the past few years, it has not been run with focus, and it now needs a huge injection of discipline to sort out its issues.”

Brittain Ladd, an independent strategy and business consultant, also pushed back on Walgreens’ characterization of weak consumer spending as the main culprit. Walgreens sells products, like household items, that consumers are still buying, Mr. Ladd said.

The company, he added, should focus on improving the consumer experience at its stores and offer private-label products for groceries and other essential items, rather than shuttering retail locations in pursuit of profitability.

“Walgreens is coming up with one excuse after another to hide this brutal fact: Walgreens is terrible at retail,” Mr. Ladd said. “And that’s really the Achilles’ heel of the company.” He also said the strategy at the executive level needed to change in order for the company to increase its profits.

Other major U.S. pharmacy chains have undergone significant restructuring in recent months. In October, Rite Aid filed for bankruptcy and announced plans to close 154 stores to help the chain save money on rent and improve its financial footing. On Thursday, it asked a bankruptcy court to approve its restructuring plan to cut $2 billion in debt.

Walgreens told investors that it expected challenges in the pharmacy industry and for U.S. consumers to continue into 2025 fiscal year.



Source link

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top