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In the latest round of negative news for drugstores, Walgreens Boots Alliance announced it’s suspending its practice of paying dividends to stockholders for the first time in 92 years amid financial struggles.
Walgreens has been undergoing layoffs, cutting costs, and recently ramping up store-closing efforts as it has struggled for years in the face of persistently low drug reimbursement rates, rising costs, in-store theft, and inflation-sensitive shoppers.
Walgreens said in a news release last week that the dividend cut was aimed at improving finances “as management continues to evaluate and refine its capital allocation policy consistent with the company’s broader long-term turnaround efforts.”
Under previous CEOs, Walgreens aimed to become more of a healthcare destination, including by investing billions of dollars into primary care provider VillageMD, with plans to put Village Medical clinics in 1,000 of its stores by 2027. Now, under recently hired CEO Tim Wentworth, Walgreens has reversed course and is considering selling all or part of its VillageMD business with a goal of refocusing as a “retail pharmacy-led company.”
Under Wentworth, Walgreens also launched a $1 billion cost-cutting program and last May slashed prices on 1,300 items to better serve customers increasingly under "financial strain."
In an interview last June with CNBC, Wentworth said that amid inflationary pressures, “the consumer is absolutely stunned by the absolute prices of things, and the fact that some of them may not be inflating doesn’t actually change their resistance to the current pricing. So we’ve had to get really keen, particularly in discretionary things.”
Earning the most media attention is drugstores increasingly locking up merchandise to prevent theft.
On an earnings call in January, Wentworth admitted that when items are locked up, “you don’t sell as many of them,” but he also claimed they’re necessary to avoid the profit drain from items being stolen. Walgreens is looking at “creative things” beyond locks to stop theft, but he didn’t “have anything magnificent to share” yet.
Walgreens’ larger rival, CVS, has also been closing stores and undergoing layoffs over the past two years and recently appointed David Joyner, formerly EVP of CVS Health, as president and CEO. Rite Aid emerged from bankruptcy proceedings in September 2024 with a smaller store base.
A CNBC article notes that beyond eroding pharmacy profit margins due to lower prescription drug reimbursement rates, profitability at the front of the drugstores on items such as snacks, makeup, greeting cards, and cleaning products have been hurt by competition from Amazon, Walmart, Costco, and grocery and dollar stores.
Stores are also seen as chronically understaffed, leading to long lines to pick up prescriptions as well as at the traditional checkout. A shortage of pharmacists and burnout for those working in pharmacies are also an issue.
CVS and Walgreens "probably do have too many stores because they overexpanded, but the bigger problem is that the stores that they have are not very good," Neil Saunders, managing director at GlobalData Retail and a RetailWire BrainTrust panelist, told NPR in October 2024.
Brian Tanquilut, an analyst at Jefferies, recently told the Los Angeles Times, “Between the pressure on the front of the store plus the pressure on the pharmacy, it’s just getting harder and harder for these guys to operate.”