I'm Lydia Hu and this is the Fox Business Rundown. Monday, October 21st, 2024. Walgreens plans to shutter 1,200 of its U.S. stores and it's not alone. Other major pharmacy chains also stare down closures and scale backs.
The days of finding a brick and mortar pharmacy on every corner may be becoming a thing of the past. The lines have kind of been blurred on what Walgreens and CVS were meant to do. So it's not so much that it's people's neighborhood convenience store anymore. It almost seemed like we're there if you need us, but the price is going to cost you. Walgreens announced last week that the chain plans to close 1,200 of its stores.
That means about one in seven of their locations will be gone in the next year following the trend of CVS, which is also closing 900 of their stores, and Rite Aid, which has closed over 500 stores after filing for bankruptcy last year. The CEO of Walgreens, Tim Wentworth, told the Wall Street Journal this summer, quote, "'We are at the point where the current pharmacy model is not sustainable.'"
So what's to blame for all the closures? The pharmacies point to several issues. Consumer habits are changing. Before consumers filled prescriptions and then bought other health, hygiene and beauty products at the same store. Now e-commerce giants have made it more convenient and in many instances cheaper.
Also, drugstore chains say profits suffer because reimbursement rates are squeezed by pharmacy benefit managers. We'll start first with the announced closures and the shock it might have for American consumers. It's definitely safe to call this a trend. What we're learning is that Walgreens is now the third of the major pharmacies in the last five years to announce a major shakeup.
Kelly Saberi is a Fox Business correspondent on the story. They are going to close about 1,200 stores that they consider to be non-profitable. Their rival CVS will have closed 10% of their retail footprint over the course of these past three years. And after filing for bankruptcy a year ago, Rite Aid has closed almost 550 stores. So it's definitely okay to call it a trend.
And as you know, consumer habits have changed and we're definitely seeing people maybe use these pharmacies or if you want to call them convenience stores, less for that latter part and more so just for getting the prescriptions they need, which is why maybe they're not profitable. And that's kind of what Walgreens new CEO said in their earnings call last week. But yeah, you are not wrong to call this a trend, Lydia.
Yeah, and that Walgreens closure is really garnering a lot of attention because that 1,200 stores that you mentioned, I think that's roughly 14% of the retail brick-and-mortar establishments that they have left. And you're right. I mean, investors are worried about this when they hear about these closures. All of these closures are coming and trying to shore up their balance sheet.
maintain their profitability. But investors are looking at this and they're getting, it seems like, they're not encouraged by it. The CVS stock down 25% year to date. Walgreens down 59% year to date. I just took a look at that on this Monday morning here for the latest read there. But you started to kind of get into some of the reasons why, why we're seeing these closures. You mentioned they are kind of, I think, the shifting consumer habits.
What is really changing? You know, are a few people just not going to the retail pharmacy like they used to? Well, it's interesting. There are a few reasons that we can look to to explain this. First of all, shoppers have a few qualms with the stores, which it's not just at CVS and Walgreens. You know, we've been seeing this trend at Walmart and Target, to be fair. But when you go in...
A lot of the products are locked up. We're talking about everything from beauty, personal care to even frozen food we've seen locked up. And also the prices are higher at these local convenience kind of stores that they've created.
There's also long lines and not a lot of people working at these stores, according to people who are unhappy with them. Now, if you go to a Target or a Walmart, they now have their own pharmacies. You know, at Target, you will see maybe a CVS in there and a lot more people working. Now, you want to have people really not feeling like they're understaffed at your pharmacy because you want to make sure that you're getting the right medication. Of course, that is just
One way that some experts are looking at the demise of these stores. But the other thing that could have led to things going wrong is the fact that CVS and Walgreens wanted to become an extension of your primary care doctor. They wanted to become this all-encompassing healthcare headquarters. And that is a really costly endeavor to take on.
And that might be why Walgreens new CEO said they're trying to quote reorienting to its legacy strength as a retail pharmacy led company. So they're saying, hey, we got to backtrack on this. We've wanted to give you everything you could possibly need here under this one roof, but it's really not working. We need to go back to the basics. Now, this is CVS has pushed even further into the health care space by merging with insurer Aetna.
So they now have Caremark, which is the prescription drug coverage benefit manager, which you may know of if you have Aetna for anybody listening. So the lines have kind of been blurred on what Walgreens and CVS were meant to do. They no longer were just here to give us our prescriptions, but they wanted to be even more. And that is just a very expensive goal to take on. And now Walgreens is basically saying we have to go back to basics.
Yeah. And when you think about all of the goods, those consumer products like the food items, the beauty products, right? When they entered that market space, they also kind of had some competition there, right? Like you mentioned, Target, Walmart. And we saw Walgreens really coming out fighting earlier this year when they slashed prices on, I think it was like a thousand products, right? They were saying, listen, we're going to try to attract attention here.
from the inflation-weary consumer, but it seems like maybe it's just not enough. Competition is really steep, and you've got the targets, you've got the dollar stores, they're all looking. It's kind of a race to the bottom in some respects. We're all trying to fight for the consumer who's awfully savvy now.
Right. And, you know, speaking of the fact that Walmart said we're going to cut prices, you know, talking to people about my story over the weekend, it's very evident that people notice that.
Any single product that you might want to just grab if you're in a pinch at some of these stores will be a couple of dollars more, maybe several dollars more. So it's something that a lot of people have noticed. So it's not so much that it's people's neighborhood convenience store anymore. It almost seemed like we're there if you need us, but the price is going to cost you. Mm-hmm.
And when you think about the convenience factor, it used to be that running to your local convenience store was maybe the most convenient option, right? It's there in your neighborhood. But now you got the options for e-commerce. You can pick something up on your way home from your Target and have it waiting for you curbside. You can also turn to Amazon. And I think that's a really fascinating development as Amazon is pushing farther and farther into
the pharmacy business, you know, with delivery of medications. You probably saw this headline, but they are expecting to expand their same day delivery of pharmacy products, drugs, to nearly half of the country by the end of next year.
So the way they're going to do that is leveraging their existing logistics model that they have where they can reach, it seems like, just about every neighborhood across the country same day. But they're going to add 20 new pharmacies, and they're going to hope to get medications quicker to more people. So when you're a neighborhood pharmacy who's having trouble getting folks in the door and you're looking at Amazon that is now able to reach –
it seems like nearly every corner, every community, and they're going to expand their pharmacy options. You're probably seeing the writing on the wall and thinking, how can I compete with that? Right?
100%. I think people have a new definition of what convenience is. And Amazon is one of the big reasons why. Probably the biggest reason, right? So this is really important to part of this trend and why these stores are closing. Now, while I'm glad you brought up the other avenues that we talked
are kind of seeing convenience and prescriptions in. Because one of the things that I noticed in my research is that Walgreens and CVS don't have
a meaningful online landscape for people to buy other things on where that's the opposite of Amazon. And that's what's so popular. Now, I should point out that Walgreens and CVS do have some sort of delivery services. I believe Walgreens is kind of linked up with
DoorDash or one of those delivery services to deliver their prescriptions to customers. But the Amazon one will likely be a better deal as you're probably paying between an extra $5 to $10 to get your prescriptions delivered. And if you're doing it monthly, that cost is going to add up. So Amazon's might be the better option when it rolls out.
Pull up a chair and join me, Rachel Campos Duffy, and me, former U.S. Congressman Sean Duffy, as we share our perspective on the discussions happening at kitchen tables across America. Download from the kitchen table, the Duffys, at foxnewspodcasts.com or wherever you download podcasts. So we're seeing the big retail chains announcing plans to close, you know, thousands of their pharmacies.
Also, we're seeing the independent pharmacy, your local neighborhood mom and pop, right, that's been probably in some communities there decades. They themselves are saying that they're struggling too. This caught my attention. The National Community Pharmacists Association, they warned earlier this year that about a third of independent pharmacies are at risk of going out of business.
And then they issued another kind of pulse of their members. They have thousands of members. They say that about half of their independent pharmacies are actually thinking about not stocking 10 drugs, the
Top 10 drugs that Medicare is negotiating prices for. These are very common prescription drugs that a lot of seniors need for things like blood pressure medication, diabetes, and things of that nature because they're too expensive. Basically, the model for these independent pharmacies is that they're expected to front drugs.
the money to purchase them so they can keep them in stock, and then they expect a rebate later. And those rebates can take a month or longer. And these independent pharmacies say it takes them, it means that they have to float
tens of thousands of dollars every month to cover that gap of what they are stocking and then dispensing and then waiting for a rebate to come later. And they're saying it's just unsustainable. So one of the options they're actually thinking about is maybe they just don't stock these medications. But Kelly, I have to say, when I hear about the brick and mortar retail establishments are closing, you got the independents that we know are closing and many of them are saying, we don't know how much longer we can stay open.
I worry about this larger trend of transitioning to e-commerce because I wonder whether all of us can keep up with that. I worry about some of our seniors who are relying on pharmacies for, you know, life-saving drugs and their ability to also transition. You know, I think that remains to be seen, but that's certainly where my head and my heart go when I hear about this story.
I agree with you. I think that's something that's on the other side of this argument is that people might look at this story and say, well, hey, you know, we have the opportunity to get our drugs delivered or there might be other avenues to go to Costco or to wherever it may be to get your prescriptions. But for older folks, I think there's...
A, a little bit of familiarity that we need to keep in mind that needs to be here because you want to trust the person that is going to fill your prescription. There has to be some sort of relationship there. And if they've been going to the same person for a long time and they trust this person, well, A, that's important. But also, if we start to see pharmacy deserts, you don't want your older family members and loved ones
to be driving 20, 30 minutes just to go pick up their prescription. So I'm with you that that is a problem for those that aren't as tech savvy or as, you know, as malleable and go with the flow to changes like this.
So I think that you make a really good point and we should be cognizant of how that's going to affect the older population who, frankly, might need some of these medications more than maybe you and I might, Lydia, who have the ability at our fingertips to order the things that we need. Right. Yeah. You know, and finally, I'll just mention here as we wrap up, Kelly, you know, the FTC is also putting a lot of pressure on.
what's called pharmacy benefit managers. You know them. They're like the middle guys in all of this. They are responsible for essentially processing prescriptions and
They work with the government and employers that are behind health care coverage. So they're processing these prescriptions. And together, the three largest pharmacy benefit managers control or are involved in roughly 80 percent of prescriptions. So it's quite a lot. But they're really powerful because they get together and they decide how much prescriptions
The pharmacies are going to be reimbursed for the prescriptions that they are filling. And what we're hearing is concern about there's a gap, that basically the pharmacy benefit managers are not reimbursing enough. And it's leaving, you know, it's forcing the pharmacies with some losses. The federal government, the FTC, is looking into this. The pharmacy benefit managers basically say no.
We are not doing anything wrong here. We are doing our job by keeping drug costs low, which is a big issue, too. So Lena Kahn, I will say, is leading the investigation. That's raising some questions about what her motives are because she's investigating, it seems like, every large corporation, you name it, they're probably under investigation. Yeah.
But there is some questions about the role of the pharmacy benefit manager. Are they really helping by keeping drug costs low? Are they really squeezing the little guy and making it impossible for them to compete? That investigation is just underway, so we have to wait to see how that plays out. But it certainly adds another layer to this. As we're now seeing, Kelly, as you're reporting today, more and more of these retail, CVS, Walgreens establishments, your neighborhood pharmacy, in the meantime, set to be closed. Kelly?
Kelly Sabiri, thank you very much for joining us. Such a great conversation. Really important information. Thanks for having me, Lydia.