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?
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.
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.
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
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.
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.
“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.
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.
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.