With disruptions coming from both physical and digital challengers, Walgreens, CVS, and other drug players will need to evolve if they hope to remain at the top of the channel. Through this lens, we can better understand Walgreens’ recent announcement to close 200 stores.
While signaling a complete retreat from Walgreens’ once-ambitious store expansion plans, the closings help put the retailer in a better position for the future. With the front store struggling, the retailer needs to rebrand its stores, shifting from the catch-all convenience-focused drugstores of the past to more specialized and compelling health-focused formats. This means refocusing on its existing 10,000 stores — and on a series of experimental store formats.
Whether partnering with Kroger to improve its fresh offering or with Humana to provide more resources for seniors, the retailer is piloting formats that seek to redefine the Walgreens shopping experience and drive traffic in a new way. Walgreens is also introducing a next-generation neighborhood health destination format in Deerfield, Ill. When considering all these formats together, Walgreens’ store strategy comes into focus, and it becomes easier to understand why the retailer has decided to close 200 underperforming locations.
Walgreens isn’t alone in shifting its store strategy. During its Q2 earnings call, CVS said it would slow its store expansion plans. In a drastic departure from its plan to open 300 new stores only a few years ago, CVS now projects only 100 openings this year and 50 next year. In the absence of a store-building boom, where is CVS dedicating its energy? To its existing stores. CVS plans to massively expand its HealthHub format in the next few years and grow its BeautyIRL format more gradually.
While store closings are never a pleasant or easy topic, Walgreens is making this difficult decision with an eye to the future. The retailer is working to reshape its shopping experience, and it will be fascinating to see how shoppers respond. Things cannot continue as usual for Walgreens, and the retailer knows it.
Interested in hearing more about how the big players in the drug channel are transforming their stores? Join us Sept. 19 for our U.S. Channel Drug Webinar for a closer look at some of the new formats CVS and Walgreens are introducing.
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Ben Antenore, Analyst