Walgreens has announced plans to shut down 150 stores following decreased demand for Covid-19 tests and vaccine shots, leading to a lowered earnings forecast.
The company’s shares experienced a significant drop to $28.64 on Tuesday, their lowest level in more than 11 years. In response, Walgreens executives have implemented drastic cost-cutting measures. The closures are expected to be completed by the end of August 2024.
As of midday on 29 June, the company’s shares were valued at $28.59, indicating a 30% decrease compared to the previous year.
Changing market trends and declining pandemic demand affect Walgreens
Walgreens attributed its decision to the declining pandemic conditions, resulting in reduced demand for its Covid-19 testing facilities.
The company also noted that consumers have become more cautious about inflation and are less inclined to spend.
Walgreens CEO Rosalind Brewer, who joined the company in February 2021, explained during an investor conference call that changing market trends, driven by an uncertain and challenging economic environment, have influenced consumer preferences.
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Financial impact and store closures
In the fiscal third quarter ending on 31 May, Walgreens reported a 59% decline in profits, amounting to $118m. Consequently, the company has adjusted its cost-management target from $3.5bn to $4.1bn.
Alongside the closure of 150 stores in the US, Walgreens will also eliminate 300 locations of its sister brand ‘Boots’ in the UK. The company currently operates approximately 13,000 stores across the US, Europe and Latin America.
The news of the store closures has had an impact on rival companies CVS Health and Riteaid, as their shares also experienced a decline.
Retail apocalypse and crime rates
Walgreens’ store closures come at a time when various retail brands are facing significant challenges due to the retail apocalypse, characterised by the closure of brick-and-mortar stores struggling to compete with online retailers.
Several well-known brands, including Bed, Bath and Beyond and Party City, have filed for Chapter 11 bankruptcy protection, resulting in store closures and job losses. Some retail experts argue that rising crime rates, particularly theft, further exacerbate the crisis.
Downtown San Francisco, in particular, has seen a 15% increase in crime this year, impacting the viability of stores. The city’s police department reported that 95 retailers have closed since the beginning of the Covid-19 pandemic, representing a decline of more than 50%.