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A Walgreens located on 45th St and Broadway in West Palm Beach Fla.

Walgreens shutters 76 stores as it plans to open new locations

A Walgreens located on 45th St and Broadway in West Palm Beach Fla.
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"Walgreens shutters 76 stores as it plans to open new locations"
Caption: A Walgreens located on 45th St and Broadway in West Palm Beach Fla.
Image by: Otisfrog

Walgreens announced it planned to close dozens of its 8,210 stores across the United States. The Deerfield, IL-based company gave the news as it released its fiscal second-quarter financials during a conference call with analysts. A press release was also issued online.

Shuttering the doors of 76 stores

Even as its revenue continues to grow, the drug-store chain has decided to close down 76 of its stores. Although, second quarter net income dropped somewhat—from $756 million this time last year to $754 million in 2Q 2014. Company CEO Greg Wasson indicated that most of the stores which will be shuttered exist too close to other, more profitable, Walgreens stores.

At this time Walgreens has not noted which stores will be closed down, stating it wants to first notify the employees working at those locations. Reportedly, employees will be "largely reassigned" to other stores remaining open. The Los Angeles Times did note that 14 of these stores are located in the western region of the United States. Reportedly, 39 closings will occur on the East Coast and 17 in the Midwest. It is unclear where the other six stores slotted to be closed are located.

The company has 139 more stores that it did at this time last year, and even though the company is closing some stores, apparently it still plans to open new ones.

A new strategy

As a Market Watch report indicated, the shuttering of store doors does not mean Walgreens is shrinking. On the contrary; Walgreens' 2014 strategy includes opening an additional 55 to 75 stores. Basically, the company is closing stores that are either too close to other, more profitable, Walgreens stores or located in neighborhoods where property values are decreasing. The company reportedly said it was not "abandoning needy neighborhoods," and the economic demographic the closed stores serve is approximately 70 percent middle to high income.

Cost savings

The company claims closing these 76 stores will save approximately $40 to $50 million a year. In recent months, profits were said to be hurt by bad weather, a less severe flu season and fewer new generic drugs coming onto the market. The Chicago Tribune reported generic drugs are usually more profitable for pharmacies.

"While we seize the opportunity for store growth as the population ages and consumers look to community pharmacy for their health care needs, we also continue to focus on optimizing our assets and organization to position Walgreens for our future as a global company," said President and CEO Greg Wasson in the company's press release, dated March 25, 2014.

Fortune (CNN) pondered the question why Walgreens had so many stores opened so close to other existing stores in the first place, noting the oversaturation of some of these local markets. It turns out this occurs due to mergers and acquisitions. Reportedly, according to Garrick Brown, director of research at Cassidy Turley, a commercial real estate services company, Walgreens has made some big purchases the last few years—Kerr Drugs in 2013, USA Drug in 2012 and Duane Reade in 2010.

With the change in direction, Walgreens expects to see its anticipated savings as the company begins its fiscal 2015.

Currently, the company operates a total of 8,681 locations in all 50 states, the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands.

More about this author: Leigh Goessl

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