'Room At The Top' For Both Walgreens, CVS In Current Retail Market

Pharmacy chain Walgreens has been on a tear of expanding its store offerings as of late, while competitor CVS recently announced a plan to close 900 stores over the next three years. 

Walgreens has increasingly focused on smaller-format pharmacy-focused stores and has stated an ambitious goal of opening at least 600 primary care practices by 2025, a pivot into healthcare anchored by the company’s majority investments in VillageMD and CareCentrix.

Conversely, in a November statement announcing the planned closures, CVS said it “will close approximately 900 stores over the next three years to reduce store density and ensure it has the right kinds of stores in the right locations for consumers and for the business.” 

But according to Placer.ai’s Shira Petrack, “it is clear that CVS is operating from a position of strength.” 

“The announced store closings do not stem from any financial need to downsize its store fleet,” she writes in a new analysis. “Instead, the move should be viewed in the context of ‘right-sizing’ to optimize its store fleet and execute its strategy of enhancing omnichannel health services to meet the needs of consumers when and where they want it.”

Petrack notes that while store closures are often seen as a cause for alarm, when handled strategically “they can actually empower a brand to maintain its reach while increasing efficiency within its wider retail footprint,” providing what she calls a “net gain” for the retailer. 

Placer.ai used its location analytics data to characterize ten of CVS’ largest markets, and found that, on average, only 6% of CVS stores in any given market were “underperformers.” But a few select markets – including Chicago, Boston, and Miami – had a larger share of underperforming stores than the average.

She also says “cannibalization” is an issue the chain may be looking to rectify through strategic closures: “CVS stores do not only have to compete with Walgreens – the current number and distribution of CVS stores means that these stores often end up competing with each other,” she says. Closing stores that overlap with the trade area of another nearby CVS wouldn’t inconvenience existing customers, she says, predicting that CVS may close “at least some” of those cannibalized locations.

“It would not be surprising if these markets experienced a larger share of closures than markets such as Orlando or Phoenix that have a lower share of underperformers,” Petrack says. “This may also speak to areas that had been harder hit by COVID migration patterns and shifts in where and how people work.

At a macro level, Petrack says, there’s room for both CVS and Walgreens to grow: a large number of CVS shoppers also shop at Walgreens, and vice versa. And that “shows that there is room at the top for two pharmacy leaders.”

“At the same time, the large and increasing cross-shopping numbers may indicate that a significant number of consumers do not currently see substantial differences between the two brands. In this light, the brands’ respective move into the healthcare provider space will do more than just create an additional revenue channel – it will also likely increase customer loyalty, as patients who are being treated and monitored by Walgreens or CVS medical practitioners will now have a reason to choose one brand over the other,” Petrack predicts.