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Withering Walgreens: A Retail Giant in Decline

Walgreens is poised to shutter more of its approximately 8,700 U.S. stores, as disclosed by its parent company on Thursday. This announcement follows the pharmacy giant’s disappointing third-quarter earnings, which fell short of analyst projections.

The company has revised its profit outlook for the year downward, attributing the adjustment to weaker-than-anticipated consumer spending. According to the CEO of Walgreens Boots Alliance, the company is observing continued pressure on U.S. consumers, who are becoming increasingly selective and price-sensitive in their purchases.

Since February, Walgreens has closed 625 U.S. stores. While the company has not specified the number of additional closures in its “significant multiyear” cost-cutting initiative, it indicated that approximately 25% of U.S. stores—those deemed non-essential to long-term strategy—could be impacted.

Following the earnings report, Walgreens’ shares plummeted over 20% on Thursday and have seen a 40% decline this year. The company highlighted that lower-income consumers, in particular, are feeling the strain from high inflation and depleted savings. In response to sluggish consumer spending, Walgreens announced last month that it would reduce prices on over 1,300 products, mirroring a similar strategy employed by Target.

The leadership at Walgreens has been unstable over the past year. The current CEO took over in October amid waning demand at retail locations, following the resignation of the previous CEO in September. Industry experts suggest that Walgreens’ strategic missteps, rather than consumer behavior alone, are to blame. Analysts criticized the company for failing to invest adequately in private-label products to attract price-conscious shoppers, describing Walgreens as a company in disarray. Over the past few years, the company has not been managed with focus and now requires significant discipline to address its issues.

Independent strategy and business consultants have also questioned the emphasis on weak consumer spending as the primary issue. They pointed out that Walgreens’ product range includes household items that remain in demand. They argued that the company should enhance the in-store consumer experience and expand its private-label offerings, rather than closing stores in a bid for profitability.

Experts assert that Walgreens is using weak consumer spending as an excuse to cover its poor retail performance. They emphasize the need for a strategic overhaul at the executive level to boost profits, suggesting that Walgreens’ retail strategy is its Achilles’ heel. Other major U.S. pharmacy chains are also undergoing significant restructuring. Rite Aid filed for bankruptcy in October and plans to close 154 stores to reduce rent expenses and improve financial health. On Thursday, Rite Aid sought court approval for a restructuring plan to slash $2 billion in debt.

Walgreens informed investors that it anticipates continued challenges in the pharmacy industry and among U.S. consumers into the 2025 fiscal year. As the company navigates these turbulent times, its ability to adapt and refocus on core strategies will be critical in reversing its fortunes.