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CNN
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CVS closes 900 stores. Rite-Aid closes 500 stores. Walgreens announced Tuesday that it plans to close 1,200 stores, meaning 1 in 7 will disappear.

What’s going on with America’s drugstores?

Walgreens and other chains over-expanded in the 1990s and 2000s to drive out competitors and attract more customers. They are now closing their doors due to changing consumer habits, competition and changes in the pharmaceutical industry.

About 25% of Walgreens’ stores are unprofitable, CEO Tim Wentworth said in an interview with the Wall Street Journal in June, and the chain will look to close stores that are close to each other or have difficulty deterring theft.

Walgreens and other retailers say yes have been hit by shoplifting since the pandemic and have resorted to locking up items or closing high-theft stores. But shoplifting alone doesn’t explain Walgreens’ problems, and the company subsequently admitted last year that it was “crying too much” about the impact of the future plague. Meanwhile, increased competition and failed growth strategies, such as acquiring primary care providers, continue to have a reverberating impact on drugstores.

“We are at a point where the current pharmacy model is not sustainable,” Wentworth said in June.

CVS, the largest American chain, closed 244 stores between 2018 and 2020. In 2021, it announced plans to close another 900 stores. Earlier this month, CVS said it planned to cut about 2,900 corporate jobs.

And Rite Aid filed for bankruptcy last year, closing as many as 500 stores.

Drugstore chains are struggling because of lower reimbursements for prescription drugs, according to analysts who cover the industry.

The majority of drugstore sales come from filling prescriptions. But their profits from that business have declined in recent years because prescription drug reimbursements are falling while costs are rising.

The prices customers pay for medications and the payments pharmacies receive are largely determined by companies known as pharmacy benefit managers (PBMs), which negotiate rebates from drug manufacturers to insurers. PBMs have been cutting reimbursement rates to boost their own profits, Elizabeth Anderson, an analyst at Evercore IRI, previously told CNN.

The pharmaceutical industry has complained that PBMs have too much control and can put pressure on pharmacies. PBMs claim they help keep drug prices low by negotiating with drug manufacturers.

“If reimbursement rates start to decline and drugstores can’t offset this with other growth, it will negatively impact their profitability,” Anderson said.

At the same time, the rest of the store is struggling.

The drugstore front, which sells snacks and household items, has become less profitable as consumers buy more of these items online at Amazon and at major chains such as Walmart and Costco. Both have grown in recent years. Dollar General’s growth has also affected drugstore chains in rural areas.

“The front end is suffering like other retailers,” Anderson said.

To attract customers, Walgreens, CVS and other drugstores have moved into primary care, adding doctors’ offices to hundreds of stores. For example, Walgreens in 2021 took a $5.2 billion stake in VillageMD, a primary care network.

But VIllageMD has not been profitable for Walgreens, and Walgreens has tried to cut costs. The chain has closed VillageMD locations and said it will divest from the business this summer.

Walgreens’ upcoming closures may help the bottom line, but will likely hurt access to health care.

When pharmacies close, some patients have to travel further to get the medicine they need. Researchers find that pharmacy closures lead to health risks, such as older adults not taking medications.

The loss of a retail pharmacy can leave a void, especially for lower-income households.

About one in eight pharmacies closed between 2009 and 2015, disproportionately impacting independent pharmacies and low-income neighborhoods, according to a study published in the Journal of the American Medical Association.

The research shows that the pharmacies most at risk of closures are those with large public insurance customer bases, which have lower reimbursement rates than private pharmacies, as well as independent pharmacies.