CVS to close stores and create new formats in health push

Discussion
Photo: CVS Health
Nov 19, 2021

CVS Health will close 900 stores over three years and launch new formats as part of its strategic push to create health destinations in the communities it serves.

The retailer, which operates over 9,000 locations, said in a release that it has evaluated “changes in population, consumer buying patterns and future health needs to ensure it has the right kinds of stores in the right locations.” This analysis led CVS to the decision that it was overstored in some areas. The chain plans to shutter around 300 locations a year over the next three years.  It will take an impairment charge in the fourth quarter of between $1 and $1.2 billion to write down associated costs.

CVS, which acquired insurance provider Aetna in 2018, has also experimented with new modes for meeting customer healthcare needs, such as telemedicine. Further, it has piloted new services, such as in-store mental health services at locations in three states with plans for further expansion. CVS’s MinuteClinic operations utilize nurse practitioners to provide basic medical services to patients at more than 1,100 locations.

The chain plans to operate three distinct formats going forward: stores dedicated to offering primary care services; enhanced HealthHUB locations with products and services designed for everyday health and wellness; and traditional CVS Pharmacy stores. The company did not provide a breakout of the numbers of stores it will operate by format.

“Our retail stores are fundamental to our strategy and who we are as a company,” said Karen Lynch, president and CEO of CVS Health. “We remain focused on the competitive advantage provided by our presence in thousands of communities across the country, which complements our rapidly expanding digital presence.”

CVS’s new approach will also include changes at the top of its retail business. Neela Montgomery, current president CVS Retail/Pharmacy, has decided to leave the company at the end of the year.

Ms. Montgomery will be replaced by Prem Shah and Michelle Peluso, who will serve as co-presidents. Mr. Shah, who was also named to the newly created role of chief pharmacy officer, will oversee that portion of the business at the company’s drugstores. Ms. Peluso, who joined CVS Health this year as its chief customer officer, will be responsible for the front-of-store.

DISCUSSION QUESTIONS: Will CVS be a stronger drugstore retailer as a result of its plan to close 900 stores, operate three distinct formats and utilize a different executive leadership model? Do you see this strategy as more of an offensive or defensive move?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I hope closing a few stores and adding new formats will help CVS provide differentiated offerings that make it more efficient for shoppers to access the products and services."
"CVS shines as a forward-leaning company. Their determination to hold the market leader position in core company priorities, like health, is what keeps them ahead of the game."
"This is a broader strategy driven play, so it’s neither competitively offensive or defensive. Great move and solid direction, especially for post COVID-19."

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27 Comments on "CVS to close stores and create new formats in health push"


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Neil Saunders
BrainTrust

CVS does have some overlapping stores and pruning the chain is both sensible and reasonable. However there are some stores which don’t perform simply because CVS has not bothered to invest in them and, on the retail side, they have lost share and witnessed declining sales and profitability. That did not need to come to pass. My hope is that with fewer shops, CVS will start making proper investments and improve the selling environment. This isn’t important just for retail, it is also vital to create a pleasant environment for those coming to use their expanding range of healthcare services.

Mark Ryski
BrainTrust

It appears that CVS is pruning their stores for excellence. With some 9,000 stores, closing 900 over three years sounds reasonable given the new direction the company is taking. It is not hard to imagine that offering new medical services might require different store layouts and designs, and so this makes sense. I see this move by CVS as strategically on the offensive and deliberate. Stores don’t remain forever, and there are good reasons to adjust and find better, more productive locations. The number of stores is huge, but not when you put the move in context.

Richard Hernandez
BrainTrust

I think it is a very smart idea now – to be ahead of the game is the right thing to do as you know Walmart and Amazon are thinking the same thing. They have decided to move forward with a solid plan to offer medical services, and need to decide which stores fit the new model and it looks like a lot of stores will not fit or are close in proximity with overlapping services (in my city, there are CVSes within a mile of each other) so I can see where store rationalization makes sense.

Zel Bianco
BrainTrust

Of course it remains to be seen if these changes will be successful or not but, for my money, I would rather go to a CVS Health to get prescriptions, flu shots, etc. than a regular CVS. If you walk the aisles of CVS, there are very few food products that are actually healthy. For the most part, foods that are loaded with sugar that do not contribute to good health. It just seems out of whack. If CVS wants to be the “go to” health destination, it needs to make a bold move, and this proves that they do. Not selling cigarettes is not enough.

Paula Rosenblum
BrainTrust

Boy, this seems like much ado about nothing. OF COURSE it’s over-stored. CVS has 9,967 stores, so that’s only 10 percent of the “fleet.” But we also forget that there are 1,844 Target stores that now have CVS pharmacies embedded in them.

When I see how many stores the duopoly of CVS and Walgreens are opening, it just makes me shake my head. Why?

Down here in Miami, CVS also bought 32 Navarro pharmacies to directly serve the Latinx market.

Maybe with fewer stores we can see better customer service. I think that would be the BEST investment for both the major drug store chains. Sitting on hold for 90 minutes to wait for Walgreens to actually pick up their phone isn’t particularly good either.

Dr. Stephen Needel
BrainTrust

Closing stores should be less of a deal than the media is making it. We’ve said in this forum for years that there are too many drug stores out there. I have five within a few miles of me – one or two would be sufficient. I’m not sure leadership models make that much difference, nor do I think all three formats are going to thrive – I’m still very skeptical about mental health clinics as a big business opportunity. But to their credit, they are trying different things and that’s never bad.

DeAnn Campbell
BrainTrust

It’s important to understand that 900 stores is less than 10 percent of the CVS total portfolio, and any large scale retailer should be actively culling, repositioning or renovating at least 10 percent of their stores at frequent intervals to remain a healthy entity. CVS has always been smart about looking ahead – they were among the first to ditch tobacco to align with their brand values, to integrate luxury beauty brands into their product mix, to elevate their white label product line. Direct-to-consumer competitors and new department store partnerships for Ulta and Sephora have made health and beauty products far too accessible outside of the drug store sector. CVS is smart to begin the process of refocusing their company around a powerhouse trend like the integration of retail and healthcare.

Bob Amster
BrainTrust

CVS has seven location in my hometown of 125,000 in population. That’s way too many for me. Trimming down the chain seems like a very good idea. Maybe it should be done in fewer than three years…

Paula Rosenblum
BrainTrust

Depends when the leases are up. No way around that.

David Spear
BrainTrust

Smart move by CVS. In a local example near my home, there are two CVSes less than a mile from each other, giving credence to the store location analysis the company performed. Leadership changes are always interesting and can be difficult to predict whether they’ll materialize into something positive. Notwithstanding this, the largest opportunity CVS (and its competitors) has is to combine data streams from back of store with front of store to deliver never-before-seen insights that will drive hyper-localized and hyper-personalized decisions in near real-time. This is a collaborative effort in harmonizing data from all three of the business units (a difficult task), translating into instantaneous insights that will underpin nearly every decision these new leaders will make in the future. If executed correctly, CVS will have a bright future.

Jeff Sward
BrainTrust

My local CVS has been a great case study in an evolving store model over the course of the pandemic. The store seems to have gotten busier and busier over the last 18 months. There is new fixturing and endcap displays. They installed an in-store clinic where I received my flu and shingles shots. And the whole time the store has maintained good inventory and presentation standards. So it sounds, and looks, to me like CVS has been a great student of the market dynamic brought on by the pandemic and is pushing their evolutionary process hard to take their customer interaction to the next level — on a very localized basis.

Dick Seesel
BrainTrust

in my neighborhood, there are CVS and Walgreens stores a block apart. The Waltreens has a drive-thru, the CVS does not — giving the Walgreens a big competitive advantage. Whether CVS plans to close locations like this one remains to be seen, along with older stores that are too close to Target/CVS pharmacies. But I certainly agree that the in-store experience leaves a lot to be desired in the remaining 90 percent of CVS locations.

Dave Bruno
BrainTrust

Differentiation is becoming critical in the drug store space. I have nine – yes nine! – drug stores within walking distance of my house, three of which are CVS (including one embedded within a Target store). I hope closing a few stores and adding new formats will help CVS provide differentiated offerings that make it more efficient for shoppers to access the products and services they require.

Mohamed Amer
BrainTrust

In shuttering 10 percent of their stores over three years, CVS is taking a systematic pruning of its store network for improved store-to-market fit. The proposed store formats will help CVS maintain overarching branding while executing on three separate and distinct identities to suit customer needs and desired experiences better.

These are good strategic moves that will propel the brand forward and positively impact the top line, market share, and create improved synergies from the 2018 Aetna acquisition.

Doug Garnett
BrainTrust

This appears on the surface to be a wise move – at least in its focus on stores as their strategic advantage. Only time will tell whether these formats matter to customers or whether they’ve chosen the right stores to close.

Rich Kizer
BrainTrust

Closing sub-standard performing stores is an easy path to take, but I do wonder if many of those stores would perform if attention had been focused on them. It is a shame to lose markets where all effort is removed but, then again, let’s watch to see what the double leadership of the “new” company does and to see who, perhaps, picks up some of the abandoned stores in other markets.

Steve Montgomery
BrainTrust

While I believe these actions will make CVS stronger, I can’t help but wonder what will happen to those locations’ customers. It is likely that the underperforming stores will be in areas not served by other drugstores. I realize there is no obligation to operate poorly performing locations but if the scenario I laid out is true, I expect some negative publicity is forthcoming.

David Slavick
Guest

Precisely correct. In the drugstore category you serve your community. A retail or department store shutting down is nothing by comparison to the impact of a CVS or Walgreens closing.

Andrew Blatherwick
BrainTrust

If CVS believe that they are overstored to the level of 10 percent, then several other retailers better start looking at their operations very closely. However if you have 9,000 locations, there is always going to be a percentage that are not profitable. It is better to trim now than have to make even bigger cuts later. Boots in the UK tried to move down a similar route a number of years ago and it was not successful then. The market has certainly changed and the U.S. healthcare market is also a very different from the UK. Can you get people to visit a store for professional services? It is not easy, even though they are often located more conveniently than healthcare providers. Also, their cost per square foot is much higher.

It will be interesting to see how this pans out – are they forward thinking or grasping at straws?

Gene Detroyer
BrainTrust

What is the big deal about closing stores? We aren’t really talking about 10 percent of their stores, we are talking about 3 percent per year. No matter what business one is in, trimming or pruning should be part of an annual review and finding 3 percent to cut is really quite low. And how many new format stores will be opening to replace the 900 over three years? I suspect any new stores will outperform those stores closed by a significant margin. In terms of retail, how many operators do we know that have held on to non-performing stores for far too long?

As far as expanding their healthcare business — it is a brilliant and necessary move. Healthcare in the U.S. is predicted to lead most all sectors in potential growth. Healthcare in the U.S. is simply a mess. Making healthcare more convenient and less costly costly will provide CVS with continued growth while a retail pharmacy will deliver at best population-level growth on average.

Ryan Mathews
BrainTrust

Chain drugstores are like gas stations – there always seem to be too many of them because real estate acquisition was seen as the key to success, even if it invited competition across the street. So, does CVS have too many stores? Probably. Is closing under-performing or redundant locations a good idea? Almost always if they can’t be fixed. Does a new approach require a new leadership model? That makes sense, it’s the only way to affect change. Will the formats work out? We’ll all soon know. Is this a defensive move? I don’t think so. I think CVS is trying to invent the future of chain drug instead of inserting one created by one of its competitors.

Shep Hyken
BrainTrust

This is simply “trimming the fat” and shutting down unnecessary stores. While it may cost over $1 billion, what’s the cost of not shutting down the stores? This is not offense or defense. Based on the reasons shared, it is simply something that needs to happen.

David Slavick
Guest

Think about it — hospitals are shutting down all over the country. Where is a person supposed to go to get healthcare? Shifting real estate footprint to a smaller format and providing healthcare services plus Rx makes CVS a place to rely on for the communities they serve. My only concern is closing urban locations that provide essential services to the underserved. It’s bad enough that urban populations have food deserts. You pull out of major urban locations because of poor performance on a P&L basis and that has a negative impact on people who need help/have poor health histories to begin with.

Richard J. George, Ph.D.
BrainTrust

The pruning of 10% of its stores is not radical and is analogous to the SKU reductions most retailers are engaged in. The key going forward is to make the necessary investments in the remaining stores to insure relevance in the market. Ironically, not too long ago, the expectation was for drug stores to be the convenience store of choice for women. Unfortunately, that hasn’t happened. CVS and other drug stores need to rethink the configuration of their legacy stores in light of the noted changes in customer needs and shopping alternatives.

Ananda Chakravarty
BrainTrust

CVS has been closing from 46 to 75 stores each year on average from 2017 onwards. This accelerated pace of 300 stores per year is not as dramatic as it sounds. More important, the concentration for CVS is in a full shift to health and health convenience instead of a pharmacy with general convenience. The niche space they seek to occupy warrants the shift in stores from their convenience retail focus. They’ve been growing since 2015 from ~5400+ stores to almost 10000, and for the new direction, they are overstored. This is a minor cut in store count to address the market it has decided to dominate. This is a broader strategy driven play, so it’s neither competitively offensive or defensive. Great move and solid direction, especially for post COVID-19. A great time for transition.

Rachelle King
BrainTrust

CVS shines as a forward-leaning company. Their determination to hold the market leader position in core company priorities, like health, is what keeps them ahead of the game.

Who knows if these new strategies, formats and organizational alignments will deliver. CVS’s marketplace savvy suggests there is an excellent chance that these decisions will be both productive and profitable; or addressed with immediate modifications. Either way, kudos to CVS for being fearless in exploring what’s next.

Camille P. Schuster, PhD.
BrainTrust

Creating stores for excellence makes sense. Creating stores that will confuse consumers between urgent care centers, emergency rooms, clinics, doctors’ offices, chiropractors, physical therapy businesses, etc. may not be the most successful direction.

wpDiscuz
Braintrust
"I hope closing a few stores and adding new formats will help CVS provide differentiated offerings that make it more efficient for shoppers to access the products and services."
"CVS shines as a forward-leaning company. Their determination to hold the market leader position in core company priorities, like health, is what keeps them ahead of the game."
"This is a broader strategy driven play, so it’s neither competitively offensive or defensive. Great move and solid direction, especially for post COVID-19."

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