USA – Walgreens Boots Alliance is undergoing a significant transformation as it focuses on reshaping its retail pharmacy business to improve profitability and respond to ongoing challenges in both consumer spending and the pharmacy sector.
The company announced plans to close approximately 1,200 underperforming stores in the U.S. over the next three years. This strategy aims to streamline operations, enhance cash flow, and boost long-term profitability.
During Walgreens’ fourth-quarter earnings call on October 15, CEO Tim Wentworth acknowledged the difficulties in the consumer market, stating, “The consumer may get stronger, but we’re being realistic.”
He emphasized that the company is operating in a challenging environment where consumer spending remains under pressure.
Walgreens Boots Alliance Global Chief Financial Officer Manmohan Mahajan echoed these sentiments, noting, “Our customers are likely to remain under financial stress for the foreseeable future.”
Despite a 6% year-over-year sales increase to US $37.5 billion in the fourth quarter, Walgreens reported a net loss of US $3 billion, largely attributed to non-cash charges related to opioid liabilities and investment impairments.
For the full fiscal year, the company reported losses totaling US $8.6 billion, reflecting broader operational challenges and rising costs.
Store closures to optimize business operations
To address these challenges, Walgreens is executing a footprint optimization program, which includes the closure of 1,200 U.S. stores over the next three years.
The first wave of closures, around 500 stores, is expected to take place in the second half of fiscal 2025.
Mahajan stated that these closures will contribute approximately US $100 million toward adjusted operating income, while Wentworth stressed the importance of retaining affected customers through Walgreens’ loyalty programs and digital channels.
Wentworth outlined fiscal 2024 as a critical year for Walgreens, with a focus on stabilizing core retail pharmacy operations, improving cost management, and enhancing operational efficiency.
“We are adapting to market dynamics, and the future of the retail pharmacy experience will play an essential role in healthcare,” he noted.
Walgreens Boots Alliance’s transformation plan extends beyond store closures. The company is also focusing on improving cash flow, managing capital expenditures, and monetizing non-core assets to reduce net debt.
Wentworth remains optimistic about the company’s ability to recover, stating, “Our turnaround will take time, but we are executing with urgency. We believe our shift to retail pharmacy has a bright future.”
Evolving consumer preferences and strategic shifts
In addition to closing underperforming stores, Walgreens is expanding its product offerings, including a stronger presence of private-label brands and increasing its digital services to align with evolving consumer preferences.
The company is also leveraging its pharmacy network to maintain strong customer relationships and ensure it meets changing demands.
This store closure strategy follows similar moves by Walgreens’ competitors, including Rite Aid and CVS, as they navigate rising healthcare costs and the post-pandemic decline in revenue.
These companies are increasingly turning to private labels and digital services to remain competitive in the shifting retail pharmacy landscape.
Boots UK performance and expansion of services
While Walgreens faces challenges in the U.S., its Boots UK subsidiary reported positive results for the fourth quarter of 2024, with pharmacy sales increasing by 10% year-over-year.
This growth includes an uptick in prescription services, over-the-counter sales, vaccines, and pharmacist services.
Boots UK attributed this success to several factors, including the launch of the NHS Pharmacy First Service in England and a record year for travel vaccinations.
Additionally, the Boots Online Doctor service, which offers treatments for conditions such as oral contraception, weight management, and erectile dysfunction, also saw significant demand.
Boots UK launched its private COVID-19 vaccination service in April 2024, further contributing to its strong performance.
