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The state of America’s pharmacies is, in a word, bleak.
Pharmacies should, in theory, be a reliable business. Seven in 10 Americans take some sort of prescription medication, creating a huge stream of potential revenue: Pharmaceutical expenditures in the US hit $722.5 billion in 2023. What’s more, many pharmacies serve as a convenient destination for all sorts of essentials, from aspirin to mascara. They are, in a sense, one of the last places where Americans go to shop in person on a regular basis.
Despite these advantages, even pharmacy megachains are struggling to survive in the current environment. Last week, Walgreens announced it would be closing 1,200 stores over the next three years, saying that some 25% of its outlets weren’t profitable. Its rival CVS, which has shuttered hundreds of stores over the past few years, announced this month that it planned to shed nearly 3,000 jobs to cut costs. Rite Aid, meanwhile, closed a slew of stores after filing for Chapter 11 bankruptcy protection in late 2023.
Even in pharmacies that remain open, there’s often next to nothing inside the store. Many items on the shelves are locked up, and good luck finding an employee to help you free the jailed deodorant or shampoo, given how woefully understaffed many pharmacies are.
If you want a nearby place to pop into and grab a bag of chips or a bottle of NyQuil, you may be out of luck.
The demise of pharmacies is also part of the “retail apocalypse,” which has intensified since the onset of the pandemic. The convenience chain 7-Eleven just announced it’s closing hundreds of stores nationwide. What started as a consequence of COVID-19 lockdowns feels like it’s becoming a permanent feature of America’s retail landscape. If you want a nearby place to pop into and grab a bag of chips or a bottle of NyQuil, you may be out of luck.
For pharmacies, the reckoning has been triggered by a confluence of trends, from the shift to online shopping to the convoluted way Americans pay for healthcare. For a while, the pandemic actually helped pharmacies paper over some of their deeper problems — all those vaccines and home-test kits brought in a lot of business. But now, the underlying issues are proving impossible to avoid. “None of these things is a new factor,” Elizabeth Anderson, a senior managing director and healthcare-equity research analyst at Evercore ISI, told me. “But you compound that for years and years and years, and eventually you get to kind of a breaking point.”
Big chains like Walgreens and CVS make their money in two main ways: selling prescriptions in the back of their stores and selling everyday goods out front. The problem for companies is that both sides of the business are under pressure from outside forces.
First, there’s the rise of e-commerce. In the age of Amazon, people can buy toilet paper and ibuprofen and greeting cards and snacks online and have them delivered right to their door, often at lower prices. Not to mention no hunting around for an associate to open a glass case. (Amazon has actually said the lousy experience at brick-and-mortar pharmacies has been a boost to its business.) On the retail level, pharmacies are also competing with big-box stores like Walmart or Target, as well as cheaper options like Dollar General, which has been working to win over budget-conscious consumers. The more expensive and less convenient pharmacies become, the more customers defect.
Chain pharmacies are competing with not just their rivals for retail dollars — but also themselves. As Walgreens and CVS stores have proliferated over the past decade or so, many of their locations are basically right on top of each other. It’s tough to make a store profitable when there’s an identical one two blocks away.
“Walgreens and CVS have been on a massive expansionary push,” Neil Saunders, a managing director at the retail consultancy GlobalData, said. “They’ve just opened stores willy-nilly, and they’ve ended up with portfolios that are too big. There’s too much overlap.”
On the other end of the business, pharmacies are expensive to run. Renting the physical space and paying an educated workforce of pharmacists mean that the fixed costs are high. There’s not a ton of room for cutting corners, except for downsizing the workforce, which makes the customer experience worse. The pharmacy end of the business is also under pressure from mail-order operations and from grocery stores and big-box chains like Walmart, which have added pharmacies in some of their locations.
Prescriptions are not profitable.
Beyond costs and competition, revenues at the big chains are being further squeezed by pharmacy benefit managers, who serve as the industry’s middlemen. Pharmacies order drugs directly from manufacturers, dispense them to a patient, and are then reimbursed by the PBMs on behalf of the patient’s insurer. But PBMs have been lowering the rates at which pharmacies are paid for handing out prescriptions — generally their top source of revenue. Sometimes the reimbursements are actually lower than the cost of acquiring the drug — which pharmacies say is happening with GLP-1s like Ozempic and Wegovy.
“The simple part is that prescriptions are not profitable,” said Douglas Hoey, the CEO of the National Community Pharmacists Association, which represents independent pharmacies. PBMs, he said, are the “judge, jury, and executioner” on who gets paid what, and pharmacies from Walgreens to the little shop down the street don’t have much power to push back. “The pharmacy really doesn’t have any negotiating leverage because the PBM says, ‘Well, pharmacy, if you don’t give me everything I ask for, then I’m going to not allow patients to get their drug benefit at your pharmacy,” he added.
The larger chains should, in theory, be able to weather the storm better than smaller shops. After all, they’ve got the scale and leverage a mom-and-pop operation lacks. But even with their market dominance, they’re no match for the PBMs. A decade ago, Walgreens tried to push back against Express Scripts, a major PBM, in an attempt to earn more from prescriptions. Walgreens ultimately gave in, losing an estimated $4 billion in the battle. (CVS has a leg up in this area because it owns Caremark, one of the big three PBMs.)
As pharmacies falter in the back of the store, they create a negative feedback loop in the front. Walgreens was never the best place to get many staples, given the high prices and limited selection, but customers could be counted on to grab a few items as they walked down the aisles to pick up their prescriptions. Now that more and more patients are getting their medications by mail or at the grocery store, the retail end has dried up. Pharmacies “were never designed to be an appealing place to go and get toilet paper,” said Jason Goldberg, the chief commerce-strategy officer at Publicis Groupe, a global marketing firm. “Toilet paper was a profitable item to sell to someone that came in for a Lipitor prescription,” he added.
Walgreens did not respond to a request for comment. But a spokesperson for CVS told me that the company was in a “better place now” than it was a few years ago. The decision to shutter stores was made back in 2021, they said, based on factors like “population shifts, consumer buying patterns, and a community’s store density.” Even after the “realignment” is finished, the spokesperson added, 85% of Americans will still live within 10 miles of a CVS pharmacy.
As more and more pharmacies close their doors, Americans ultimately have fewer places to shop in person. One of the reasons for the decline of pharmacies, in fact, is how badly they’ve handled the retail end of their operations. For starters, faceless chains supplanting independent pharmacies diminished the loyalty customers felt for their local stores. In a mom-and-pop location, you could develop a relationship with the pharmacist, get trusted counseling, and have a pleasant conversation about how your kid’s soccer team is faring. In the current landscape of commoditized pharmacies, there’s no such thing as personalized service. Waits to pick up prescriptions are long, customer service is often subpar, and if you do have a problem, places are often so understaffed they can’t help even if they want to.
Pharmacies don’t need to lose 50% of their retail traffic for it to be a disaster.
The pharmacy experience, to put it plainly, often sucks. In many places, there’s no longer such a thing as a quick, easy run to a Duane Reade. Whether you believe retail theft is as big a problem as some executives say it is, a lot of items are now locked away, which eats into sales and leads customers to shop elsewhere. Brian Tanquilut, a healthcare-services-equity research analyst at Jefferies, said pharmacies were also narrowing their stock-keeping-unit counts — basically, the number of items they keep in stock — to better manage cash flows and inventories, but the move means there are fewer options for customers. I’ve often found myself frustrated by all the empty shelves at my local pharmacy, and I know a lot of people who feel the same way. From a consumer standpoint, it starts to feel like, what’s even the point?
Pharmacies don’t need to lose 50% of their retail traffic for it to be a disaster, Goldberg told me. Just 10% is enough. And things can go into a tailspin, fast. “You get 10% less traffic, so you sell a little less stuff, so you staff one less person,” Goldberg said. “So you make a few more customers dissatisfied.”
Other convenience chains are also struggling to hang on to their customers. People aren’t popping into 7-Elevens as often as they used to — in part because they aren’t commuting to and from work as often, and in part because they aren’t smoking as much and don’t need to grab a pack of cigarettes. (Healthier habits, apparently, are bad for business.) What’s more, price-conscious consumers are now going out of their way to seek out lower prices, stopping by the local dollar store for some cut-rate options.
“Things are very cyclical in retail, and you see the rise and fall of a lot of formats and chains,” Saunders, the retail consultant, said. “There was a period when the drugstores were on the ascendancy, and the independent chains were really on a downward curve. Now what we are seeing is drugstores having gone past their peak, and now they’re in a very difficult spot.”
With Walgreens closing stores, Saunders was blunt about the company’s future. “They have got to set out a pathway to growth, both to convince investors and to stabilize the business,” he said. “I’m not sure that they have done that convincingly yet. They are very focused on managing the decline in the business, trying to change the business structurally and in organizational terms, but they haven’t really set out a proposition, especially for how they win in retail.”
It seems strange to mourn the demise of corporate giants like Walgreens and 7-Eleven. These, after all, are the very corporations that helped decimate local businesses, from the friendly neighborhood pharmacy to the five-and-dime. But their passing feels like it marks yet another transitional moment in American culture, as the entire concept of “running out to the store for a minute” goes the way of music on MTV and the landline. What does it mean to have so few places left to grab the things we need? What will we become of us when every last transaction, from our Slurpees to our statins, is handled electronically?
At a minimum, the struggles of pharmacies like Walgreens mean that more Americans will now have no place to fill their prescriptions within striking distance of their homes. An estimated 15.8 million people — about 4.7% of the population — already live in pharmacy deserts. Some pharmacies are shuttering in communities of color and moving to whiter areas. And rural communities, which often have only a single pharmacy in town, could be hit especially hard by the widespread closings.
“You’re talking about closing a store that not only is important for a community for their prescriptions, but they can pick up other supplies at that store,” Nick Fabrizio, a senior health-policy lecturer at Cornell University, said. “If it’s gone, now they’re driving 20 miles or 30 miles to find another option.”
For the pharmaceutical industry, there are no obvious fixes. Steven Anderson, the CEO of the National Association of Chain Drug Stores, said there’s an “urgent need” for congressional action on PBMs, which are already under scrutiny by government regulators. But competitors like Amazon aren’t going anywhere, and Walgreens.com isn’t exactly an online behemoth. “It’s really a multifactorial problem that I don’t see getting better anytime soon,” Fabrizio said. And as pharmacies and other quick-stop stores continue to close their doors, we may look back one day in the not-too-distant future and realize we were living through the golden age of convenience, when getting whatever you needed was always right around the corner.
Emily Stewart is a senior correspondent at Business Insider, writing about business and the economy.