CVS had all the benefits, but it lost the pandemic. Here’s what happened

Is CVS not doing very well right now? Haven’t many people gone to drug stores during the pandemic to refill hand sanitizers, cleaning wipes and toilet paper? What about all the Covid-19 vaccine shots that CVS releases?

Actually, CVS ‘closures should not come as a surprise. They are the latest measures in the long-term contraction of the US pharmacy sector. CVS (CVS), Walgreens (WBA) and Rite help (ADVICE) has closed stores for years, while independent pharmacies have come under pressure from chains. Closing drug stores can harm local communities, creating loopholes for medicines and necessities.

CVS, the largest pharmacy chain in the United States, pointed to “changes in the population, consumer buying patterns and future health needs”[ads1]; as factors in its decision to close stores.

Here’s why CVS will close 900 stores.

Pivot to health care

The future of CVS is not the sale of snacks, sweets, shampoos and greeting cards. It’s in health care.

To that end, in 2018, CVS completed a $ 69 billion acquisition of Aetna, the largest healthcare agreement in history, to create a gigantic customer base of around 40 million Americans. CVS is committed to increasing the profits from these patients’ health plans while helping to reduce costs.
CVS has also renewed its retail strategy and said on Thursday that the stores will have three different models: locations that offer primary health services; “HealthHub” stores that have on-site dieticians, nurses and laboratory services, and on-site treatment for chronic conditions such as diabetes and asthma; and traditional shops.

CVS is “really volatile and leans into the healthcare aspects of the business,” said George Hill, an analyst covering the company and the healthcare sector at Deutsche Bank. “You would much rather sell health services that have high value, high margin versus greeting cards.”

Too many stores

When walking down the street or driving around the suburbs, you usually pass a CVS. And then a Walgreens hit right next door. Rite Aid is probably pretty close too.

“There are too many pharmacies in the country, and there is too much pharmacy capacity. That gives CVS a reason to go,” Hill said.

CVS received a boost from administering Covid-19 vaccines and tests, but it took a hit from people who limited visits to stores and went to the doctor less often.
CVS closed 244 stores between 2018 and 2020, but still has more than 9,900 stores. It’s more than Walmart (WMT), Goal (TGT) Kroger (KR) and Costco (COST) – combined.

The recent closures will “reduce store density in certain locations,” CVS said Thursday, meaning CVS has too many stores too close together in some places.

Competition from Amazon and Dollar General

Also, fewer people are heading to CVS and other drug stores to fill out their prescriptions and shop for household staples these days. (And they also do not go into CVS to buy tobacco, which the company stopped selling in 2014.)
Some shoppers have replaced trips to stores like CVS by buying supplies online from Amazon (AMZN), or from brick-and-mortar giants like Walmart and Target. The chains have built up their own strong e-commerce companies in recent years.
Dollar General (DG) has also taken market shares from drug stores, and undercuts the sector with lower prices for similar goods. And now Dollar General is launching its own healthcare initiative as it continues to take business from pharmacies.
CVS closes 900 stores, and the big winner is Dollar General
Online pharmacies and telemedicine have also had an impact. Amazon bought PillPack in 2018 for more than $ 700 million and began sending prescriptions to Prime members last year. Capsule and other digital pharmacies that deliver directly to customers’ homes are also growing.

Although physical pharmacies are still an important stop for many older people, or those who do not use the internet or have access to it, they are increasingly becoming a thing of the past for the growing number of online customers.

Rising costs

Closing stores also reduces CVS ‘costs while retaining most sales. Labor and retail costs increased during the pandemic due to security protections such as plexiglass, floor decals and masks. The company said in August that it planned to raise the minimum wage to $ 15 an hour from $ 11 in an effort to retain and attract workers.

Lack of labor?  Not in goal

“There is cost pressure in all directions,” said Hill, an analyst at Deutsche Bank.

Seventy-five percent of CVS’s sales come from filling prescriptions, but profits from that segment have declined in recent years due to lower reimbursement rates.

But when CVS closes a store, it can hold on to most of those sales by moving prescriptions to its nearest pharmacy, Hill said.

Covid-19 vaccines were not a big boost

CVS received a boost from people who came into their stores for their Covid-19 vaccines and tests. The company has administered 43 million vaccines and around 38 million tests, said CEO Karen Lynch at a revenue interview earlier this month.

Biden's vaccine mandate is pending, but companies are moving forward anyway

But the vaccines were just a short-term gain for the company, which said it would only generate $ 3 billion in revenue by 2021. It will go down by up to 40% next year, along with what sales CVs were collected as shoppers surfed the aisles while waiting to be vaccinated, Lynch said.

People also visited doctors less frequently last year and into 2021, and optional procedures were suspended early in the pandemic, which led to CVS filling out fewer common and chronic care prescriptions than in the years before the pandemic.

And fewer people have also come into stores to pick up cough and fever medications – big business for CVS – because they still wear masks and spend more time at home than they once did.

Source link

Back to top button