CVS Health is preparing to open a dozen stores offering full-service pharmacies but very limited retail, the latest example of a national drugstore chain responding to a long stretch of declining retail sales.
The new stores will be on average less than 5,000 square feet, or not even half the size of a typical CVS location, the company said. The 12 new stores are expected to open over the next year in cities and towns throughout the U.S.
These shrunken CVS stores will still stock health-related products such as over-the-counter cough and pain medications or first-aid care, a CVS spokeswoman said.
But missing from their aisles will be the vast array of consumer items, such as greeting cards, groceries and nail polish, that for decades have been staples at CVS and other national drugstore chains.
These chains have struggled in recent years to address both competition from discount retailers and a surge in theft. The challenges are leading to cost-cutting, widespread store closures and other dramatic changes at these companies.
CVS is undergoing a significant downsizing of its footprint. The chain, which announced plans in 2021 to reduce its store density, plans to close 270 locations in 2025 after 800 net closures over the prior three years.
A spokeswoman said CVS is making closure decisions based on a number of factors, including population shifts and consumer buying patterns.
Walgreens Boots Alliance also is closing locations and this week reached a deal with an equity value of about $10 billion with investment firm Sycamore Partners, which is taking the chain private in one of the largest leveraged buyouts in 10 years. Rite Aid, meanwhile, emerged from Chapter 11 last fall as a private company and has closed hundreds of stores since the start of the pandemic.
Julie Utterback, senior equity analyst for Morningstar, said CVS’s new store format is surprising, given the company’s broader downsizing plans. Focusing its real-estate usage on prescriptions makes sense, however, since more than 80% of sales last year came from the pharmacy department.
“That is where most of the value is generated,” Utterback said. “The front of their store operations has been in question for a while.”
CVS and other drugstore chains for years built their business around convenience. Customers walking through the store to pick up their prescriptions would buy shampoo or pretzels—often at a large markup—on their way to the cash register.
And through acquisitions and aggressive real-estate expansion, drugstore chains became ubiquitous across American streets and shopping centers.
But pharmacies have been losing market share for years to online and discount competitors that offer the same products at lower prices, in many cases delivered to customers’ doorsteps. The spread of beauty stores such as Sephora further siphoned customers from drugstore aisles.
Retail theft has further cut into margins by forcing stores to hire more security staff and lock up large quantities of items, measures that have inconvenienced and annoyed many customers.
CVS is in the very early stages of rolling out its new small stores, and plans to have the first few locations operating by the end of the year, the spokeswoman said.
The company is focusing on areas where residents already may be buying their household items from Walmart or dollar stores but don’t have a place nearby to fill their prescriptions and get immunizations.
“This work is really focused on introducing or adding pharmacy access in communities that are lacking,” said Amy Thibault, spokeswoman for CVS.
The chain is also opening about 30 of its traditional stores this year, including new pharmacies within discount chain Target.
“We have a lot of different footprints, and this is just one more to add,” Thibault said.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.