Aisle information signs are seen at a Walgreens pharmacy store in Deerfield, Ill., Thursday, July 25, 2024. (AP Photo/Nam Y. Huh/The Canadian Press)


August 5, 2024 Tags:

American drugstores are exploring smaller store formats and new ways to provide care as price-sensitive customers seek alternatives.

Walgreens and CVS are leading these experiments, with some Walgreens stores now a quarter of their original size and CVS locations incorporating full primary care clinics. Analysts believe these changes could enhance access to healthcare and build stronger customer relationships.

Neil Saunders from GlobalData highlighted the complexity of disrupting the healthcare market, despite its apparent readiness for change. Walgreens CEO Tim Wentworth indicated potential closures of underperforming stores, and CVS Health is also closing locations. Rite Aid has filed for bankruptcy, and numerous independent drugstores have shut down over the past five years. This has resulted in fewer pharmacies in predominantly Black and Latino urban neighborhoods compared to white-majority areas, according to an Associated Press analysis.

Despite these challenges, over 30,000 drugstores remain nationwide. However, Walgreens executives acknowledge the market is oversaturated. These stores face intense competition from Amazon and budget retailers like Walmart and Dollar Tree, along with issues like theft, rising costs, and lower prescription reimbursements.

To adapt, Walgreens is testing a new store model in Chicago featuring digital kiosks for ordering and a separate pickup area for kiosk and online orders. Additionally, Walgreens has opened about 100 smaller drugstores emphasizing health and wellness, stocked with store-brand merchandise. Jim Cohn, a Walgreens spokesperson, stated that the company aims to meet evolving shopper preferences.

These smaller stores are cost-effective and can serve less densely populated areas. For instance, a Walgreens in Indianapolis has only four aisles between the entrance and the pharmacy, stocked with essentials but lacking items like magazines and extensive beauty products. Leonard King, a regular customer, appreciates the timely prescription service but misses the wider selection available in larger stores.

CVS Health is also shrinking its retail selection in some stores to accommodate Oak Street Health primary care clinics. These clinics, which will be added to 25 stores this year and 11 next year, cater mainly to Medicare Advantage patients. CVS Health is focusing on areas with high demand for primary care, including major cities like Chicago, New York, and Dallas. Executive Mike Pykosz emphasized that investing in these clinics can improve patient health by enhancing access and care quality.

Improving patient convenience fosters customer loyalty, leading to repeat business, according to Arielle Trzcinski from Forrester. Independent drugstores, too, are expanding their healthcare services, offering more immunizations and testing, and some are incorporating doctor's offices or specializing in diabetes care. Kurt Proctor of the National Community Pharmacists Association noted that these stores continue to adapt to community needs.

The shift towards healthcare isn’t new; drugstores started adding clinics over two decades ago. CVS Health has emphasized health since discontinuing tobacco sales in 2014. Jeff Jonas from Gabelli Funds believes a significant portion of drugstores could eventually house large health clinics, particularly in densely populated areas, though he warns the concept is still being tested.

Walgreens' recent closure of VillageMD primary care clinics illustrates the ongoing learning process for companies in this space. It’s clear that drugstores are no longer the go-to convenience destinations they once were, as noted by Saunders, a change that has unfolded over the past decade or so.

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