In a significant move reflecting the challenges within the U.S. retail pharmacy sector, Walgreens has announced plans to close approximately 1,200 underperforming store locations. This announcement came during the company’s fourth quarter and full fiscal year report, where it also revealed a staggering $3 billion loss for the three-month period ending August 31.

Walgreens’ decision is driven by sluggish sales performance, an increasingly competitive online marketplace, and complications arising from its venture into health care services. The company has initiated what it refers to as a “footprint optimization program,” which will lead to the closure of at least 500 stores by fiscal 2025. This figure marks an increase from the 300 store closures the company reported in June.

In the fourth quarter, while pharmacy sales at U.S. locations did see a rise of 9.6% due to factors like brand inflation, retail sales themselves experienced a decline of 3.5%. Comp comparisons from the fourth quarter of 2023 indicated a 1.7% drop. Although the retail margin was positively impacted by a better category mix and stronger performance from store brands, higher levels of shrink (loss of inventory) offset some gains.

Looking forward, Walgreens has warned of continued declines within its U.S. retail pharmacy business throughout fiscal 2025. CEO Tim Wentworth emphasized the company’s renewed focus on its core pharmacy operations, following a period of expansion into various health care markets through acquisitions and new service offerings.

The company intends to stabilize its retail pharmacy by optimizing store locations, controlling operating costs, enhancing cash flow, and addressing reimbursement models to maintain margins and ensure patient access. As Wentworth noted, fiscal 2025 “will be an important rebasing year” aimed at driving long-term value creation, even though such a turnaround is expected to take time.

Walgreens is not the only player in the market facing these issues. CVS Health has recently announced the closure of 900 stores, while Rite Aid has also reduced its footprint amid a bankruptcy process. This trend underscores the tough landscape for traditional brick-and-mortar pharmacies.

Simultaneously, the rise of digital pharmacy services is intensifying competition. Amazon is poised to expand its pharmacy operations with plans to launch same-day medication delivery services across nearly half of the U.S. in 2025. They aim to open 20 pharmacy locations in new markets, including some major cities like Boston and Philadelphia. The advantages Amazon holds stem from its robust e-commerce infrastructure and advanced fulfillment capabilities.

At a recent event highlighting future delivery strategies, Amazon Pharmacy’s VP of operations, Hannah McClellan, articulated the company’s commitment to making healthcare more accessible and affordable. She stated, “We are making healthcare more affordable, more engaging, and more accessible by narrowing that critical treatment window through same-day delivery.” This approach emphasizes transparency and customer care—areas in which traditional pharmacies may struggle.

Walgreens currently operates about 9,000 retail locations in the U.S., Puerto Rico, and the U.S. Virgin Islands. As it faces these considerable adjustments, it remains crucial for the retailer to reassess its operational strategy, namely how to effectively compete with new digital entrants while managing a sizable brick-and-mortar network.

The evolution of consumer expectations and the growing importance of digital services mean that Walgreens will need to innovate continuously. This may involve integrating tech-driven solutions or enhancing its existing pharmacy models to retain customer loyalty and improve service delivery.

As the pharmacy landscape transforms, it’s apparent that companies like Walgreens must rethink not only their physical presence but also the services they provide. The upcoming fiscal year will be critical in determining whether these strategic shifts will lead to a sustainable recovery.

Understanding these shifts in retail pharmacy is vital for stakeholders in the industry. By examining Walgreens’ moves and the broader competitive environment, businesses can better position themselves in an industry that is anything but static.