REAL ESTATE NEWS

It's hard to find a worse-performing sector in retail than pharmacy stores. From 2010 to 2021, nearly 30 percent of drug stores in operation had closed down, according to a study from Health Affairs. In addition, giant Rite Aid was forced to file for bankruptcy last year — but the worst might be finally behind the industry.

Ethan Chernofsky, SVP of marketing for Placer.ai, Tonya Creekmore, SVP, of national accounts at Brixmor Property Group, Meghann Martindale, principal, and director of market intelligence for retail at Avison Young, and Ian Schroeder, SVP for CBRE during a panel at ICSC New York 2024 discussed the turbulent trend.

WHY CLOSURES ARE HAPPENING

First, let's get into why mass closures are hitting drug stores. Martindale said it's not a retail sales issue — but rather the pharmacy side of the stores leading the downturn.

"You can look at a pharmacy location, the sales are incredibly strong," she said.

"That store still may not be profitable simply because of the pharmacy side. This is not specific to CVS, Rite Aid, or Walgreens — it's everybody, and I think they're still trying to figure out what that new model looks like, with issues that we typically don't have to address in real estate."

It's also competition from other major retailers like Walmart and even Amazon that's hurting drug stores.

STORE CLOSURES MAY HAVE BOTTOMED

While acknowledging that 30 percent is a significant number, Schroeder is confident that the drug store sector may have bottomed out when it comes to closures.

"Hopefully, we're at a point where they've either reorganized or they're taking the write-downs now, letting the market know that these stores will be closing," he said of big pharmacy chains including CVS, Walgreens, and Rite Aid, which have announced mass closures," he said.

"So my opinion, I feel like we've gone through the worst of it, and so hopefully that trend does not continue."

Schroeder added that most Americans will go see a pharmacist before going to an urgent care or an emergency center — so there's upside still for drug stores.

To add to Schroeder's point, Creekmore believes what we'll see is an evolution, as Walgreens is in talks to sell its brand to private equity firm Sycamore Partners, according to The Wall Street Journal.

"That's going to have an enormous impact on what it looks like," Creekmore said of the possible private equity sale. "So I think it's just going to evolve. Drug stores aren't going away. It's just going evolve what that looks like from a real estate perspective," she predicted.

WHAT AREAS ARE HIT THE HARDEST?

The panelists argued about what areas see the most impact from the drug store closures. Schroeder made his case for rural counties.

"That pharmacy is maybe the first line of defense for somebody who might be sick," he noted.

"That's a big service that it can pull from these local communities if the pharmacy does close. I think rural America, when a pharmacy closes, is getting hit the hardest."

While Martindale acknowledged that rural America sees a tough impact — she warned not to sleep on Urban centers either.

"It doesn't seem like the end of the world that someone might have to go 10 blocks to get to a pharmacy, but in an urban environment, that's a big issue," she stated.

WINNING COMPETITION WILL BE BIGGEST CHALLENGE

To move forward, drug stores will need to figure out how they can convince consumers to shop at their locations versus another online retailer or a big box store like Target or Walmart.

The good news for CVS, Walgreens and Rite Aid is wellness products account for their fastest-growing segments when it comes to sales. However, others have figured that out too, according to Chernofsky.

"That's moving to grocery," he said of health and wellness items.

"It's not there's the issue of pharmacy, there's the issue of Front of House, and there's the issue of that front of house pharmacy that's also being moved. And so there's this fundamental question of evolution, optimization of retail footprint."

Another thing is the premium pricing customers pay at drug stores on some items compared with other big box retailers.

Chernofsky asked: "Is it okay if I'm paying $2 to $3 more for a said product within a location?

He added: "I can't justify it if I don't need to be in the location to begin with."

Drug stores will need to figure out how they can "optimize" their retail footprint so they have the "right locations in the right areas," according to Chernofsky.

Source: GlobeSt/ALM