In November of 2021, CVS Health announced plans to close 900 stores over the next three years, amounting to roughly 10% of its total footprint. A month later, Rite Aid revealed similar plans to shutter 63 stores throughout the U.S.
If that news rattles you as an investor, you're in good company. But in reality, store closures aren't necessarily indicative of financial distress. In this day and age, they're more of a strategic decision that's a byproduct of shifting consumer patterns.
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Shopping has gone digital
The COVID-19 pandemic created a major shift in the way consumers access essential and non-essential products. When the outbreak was at its worst, many consumers got into the habit of buying everything from groceries to clothing to medications online in an effort to stay out of stores.
Now, the fear of in-person shopping may be less prevalent thanks to the widespread availability and effectiveness of coronavirus vaccines. But the habits formed during the pandemic are ones consumers may not be so quick to shake.
Last year, Adobe predicted that 2022 will be the first year in which e-commerce sales hit the trillion-dollar mark. And given the convenience of online shopping, it's easy to see why consumers might uphold that practice even once fear is no longer a factor in visiting stores.
Circling back to pharmacies, there's a clear upside to visiting a retail location in person: the option to fill prescriptions quickly and speak to a live person who can address questions and concerns. But these days, it's become more affordable for patients to stock up on medication in bulk. And it's easy enough to do so online.
Furthermore, not every prescription that's filled is needed in a hurry. And so it makes sense for pharmacy chains to focus resources on enhancing their online prescription management platforms, all the while shuttering locations that don't tend to see a lot of foot traffic.
It's not doomsday for pharmacies
News of pharmacy closures may have rattled more than stockholders -- it may have thrown real estate investors for a loop. Shopping center landlords routinely rely on pharmacies to serve as stable tenants. If more pharmacies make store closure plans, it could lead to an uptick in vacancies and reduced profits.
But while pharmacy chains are indeed forging forward with closure plans, this doesn't mean demand for retail locations will suddenly plummet. As convenient as online prescription ordering may be, pharmacies don't just dish out pills -- they're also a popular vaccine destination. In fact, pharmacies played a huge role in COVID-19 vaccination efforts, and they routinely serve as a go-to source for annual flu shots.
At this point, we don't know how frequently COVID-19 boosters will be needed. But flu shots have long been an annual mainstay, and that alone is enough to help ensure that pharmacies are unlikely to shutter the bulk of their locations in short order.
As such, real estate investors don't have to panic over pharmacy closures, and stockholders don't have to chalk up closures to poor performance and revenue concerns. If anything, shuttering underperforming locations is a smart move that could serve pharmacy chains well going forward, and it's one that investors should consider embracing rather than worrying about.
