Brick & Mortar Meltdown Continues.
By Wolf Richter for WOLF STREET.
CVS – after a series of acquisitions, the largest pharmacy chain in the US – said that it would close 900 stores over the next three years, and convert many of the remaining stores to selling healthcare services instead of the stuff they now sell, as the profitable prescription drug business is wandering off to competitors on the internet.
CVS is thereby following in the footsteps of Walgreens, which already closed nearly 600 stores in the US over the past two years and bought its way into healthcare services by acquiring a controlling stake in VillageMD for $5.2 billion.
Walgreens closed the stores in order to cut costs to put a stop to the plunge in its earnings. The 600 stores it closed include a few of its 60-plus stores in San Francisco (there’s one every few blocks) where the shift to online pharmacy sales by the dominant healthcare provider Kaiser Permanente has clobbered Walgreens, which ridiculously blamed shoplifting for closing those stores in San Francisco, thereby creating perfect clickbait for the brain-dead global media that without further research or thought regurgitated this nonsense, and thereby covered up the real reasons for Walgreen’s store closures in San Francisco.
Refreshingly, CVS chose not to go that route to explain its store closures – but stuck to reality: As part of its “strategic review of its retail business,” it has evaluated “changes in population, consumer buying patterns, and future health needs,” it said in its press release. It therefore has decided to shift to sales of services and away from sales of goods.
It’s going to be much less of a retailer and much more of a service provider. Let the internet take care of retail.
CVS said it would:
- Reduce the store density and close 900 stores at a rate of 300 stores per year over the next three years.
- Convert some of the remaining stores “to offering primary care services,” thereby switching those stores from retailers that sell goods to healthcare service providers.
- Convert some of the remaining stores to “enhanced versions of HealthHUB locations” that offer health-related services, such as treating common illnesses and chronic conditions, along with telehealth visits, and sell some products such as supplements.
- Keep some “traditional CVS Pharmacy stores” that sell prescription drugs in addition to healthcare services, and the stuff you find on the shelves and racks in a CVS store.
The store closures will cost around $1.0 billion to $1.2 billion in impairment charges in Q4, CVS said. And while it was at it, it lowered its EPS for the full year of 2021 by about 11%.
Like Walgreens, CVS is getting hit hard by the shift of the profitable prescription drug business to the Internet and the telephone. This is being done directly by various big healthcare providers, such as Kaiser Permanente, by Amazon, by Costco, and by everyone and their dog, by CVS and Walgreens too.
Prescription drugs are light-weight and high-value, and transportation costs don’t matter that much, and the pharmacy operations are already local, and their inventory is already local, and they might as well sell them online and deliver them the next day, and not have to worry about retail operations.
CVS didn’t say how many of its 10,000 or so stores would remain classic CVS retail stores with prescription drug counters, and how many stores would be shifted to service providers.
The writing has been on the wall for years: Shifting the pharmacy business to the internet is the biggest no-brainer in the history of mankind, and once customers figure out how easy it is to order this stuff online or by phone, in coordination with their healthcare provider, instead of standing in line at the pharmacy, there’s no going back.
And so the brick-and-mortar meltdown continues. Store closures are on the table again at Macy’s, starting in January, and at many other retailers, despite the most extravagant and historic spike in retail sales to stimulus-pumped consumers, as money-printing hits home.
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