Backlash against Walgreens in San Francisco shows the risks of drugstore closings – Crain’s Chicago Business

0
20
backlash-against-walgreens-in-san-francisco-shows-the-risks-of-drugstore-closings-–-crain’s-chicago-business

A decision to close five stores in San Francisco lands Walgreens squarely in the middle of a broader debate over community disinvestment. With dozens of additional stores on the chopping block, the Deerfield-based drugstore chain must be delicate as it executes cost-cutting measures.

Walgreens says the five San Francisco stores—the last of which closed Nov. 17—were shuttered due to organized retail crime. Such crimes, in which brazen professional thieves make off with large hauls of merchandise, have become rampant. A Walgreens spokesman says theft in those particular stores was five times the chain average, forcing the company to spend 49 times the chain average on security measures there.

Since Walgreens announced its plans last month, however, local leaders and media outlets have questioned the company’s claims. The city’s mayor was skeptical, and others pointed out Walgreens’ previous plans to close stores for reasons other than theft.  

The reaction highlights the balance Walgreens must strike between pursuing profits and maintaining strong relationships with the communities it serves. Typically, closing an unprofitable store makes good business sense for a company—especially for a 9,000-store chain like Walgreens—even if it ruffles a few customers’ feathers, experts say. But consumers are applying greater scrutiny to corporations, particularly when it comes to diversity and inclusion.  

“People are more sensitive to the issues, and that’s where it’s important how Walgreens handles it,” says Erik Gordon, professor at the University of Michigan’s Ross School of Business. “If it starts to become something beyond local protests, that’s where Walgreens is going to have to make its case.” 

Walgreens is expected to close another 150 U.S. locations over the next three years as it works to cut $1.3 billion in costs, according to its annual report filed with the Securities and Exchange Commission. At the same time, CEO Roz Brewer has set lofty growth goals for the company as she works to transform it from a pharmacy chain into a medical care provider. Walgreens plans to put medical clinics in 1,000 of its stores by 2027, more than half of them in areas with limited access to such services. 

Walgreens long-standing role as a community pharmacy, coupled with its new ambitions in health care, make store closings even more fraught.  

If a merchandise retailer closes shop in a community that’s experiencing disinvestment, it’s a blow. Pharmacy closings hit communities harder. Losing a neighborhood drugstore makes it more difficult for customers to get essential medicine, particularly in urban areas where residents might not own cars, and in areas with higher rates of chronic disease. That impact can spawn lingering resentment in communities, which in turn could hurt the company’s efforts to attract customers to its new medical clinics. 

Residents of the Jeffery Manor neighborhood still rue the loss of a Walgreens store after two years. The company shut down the location at East 95th Street and South Jeffery Boulevard. It felt like more than just an additional lost store in a steady stream of closures, says Lovie Bernard, a 70-year-old resident who has lived in the neighborhood for 50 years. It felt like the main hit in a greater trauma to the neighborhood.  

Bernard used to walk to Walgreens three or four times a week. Now she drives 5 miles to Indiana to do her shopping, and picks up her prescriptions from a Walgreens there. “Our neighborhood is pretty much barren,” she says. 

Walgreens declined to comment on the closure to Crain’s, but representatives met with area residents shortly after it was announced. The representatives told residents the location had a higher percentage of Medicaid prescriptions, and that Walgreens loses money on such prescriptions, Block Club reported

Jacqueline Marsh, a resident of nearby Calumet Heights, was at that meeting. The 73-year-old used to pick up her prescriptions from the Walgreens. She says some of the former customers still don’t understand why the store, which seemed to always be busy, was closed. 

Marsh had her prescriptions transferred to a nearby Jewel-Osco, and stopped shopping at Walgreens altogether. 

“I’m very unhappy with Walgreens. Period,” she says. “It never crossed my mind that Walgreens was dissatisfied with us, that they didn’t want to be here. That never crossed my mind until one day it’s over, they’re gone.” 

More hard feelings could be in store as Walgreens moves forward with another wave of closings. The company won’t disclose which stores it plans to close, or explain how it decides which locations to shutter. Between March 2018 and the fourth quarter of fiscal 2020, the company closed 769 stores and related assets as part of a plan to “optimize store locations” in the U.S., according to its annual report. The upcoming 150 store closures are additional, and part of a separate cost management program. 

Financially lagging stores will likely be the target, says Dylan Finley, an equity analyst at Morningstar. He notes that strategy lines up with company’s financial priorities in an industry where competition is intensifying and profit margins are under pressure.  

But community outrage over additional closings could ultimately hurt Walgreens’ image with customers, says Amanda Sharkey, associate professor of organizations and strategy at the University of Chicago’s Booth School of Business. As Walgreens looks to close more stores, it needs to be crystal clear with customers on the reasoning, Sharkey says. 

“The idea that they are this important touchstone in the community will definitely make it harder for them to pull away from locations that they for whatever reason don’t feel like are profitable or don’t want to be in,” she says.