A Crisis or an Opportunity? In Depth Look into American Pharmacies

Pharmacies are an integral component to the prosperity of American communities. They are places that supply prescription medicine to us when needed, provide vital health services such as vaccinations and vision/hearing care, and they serve as convenient vendors of over-the-counter health & leisure products. Yet in recent times, economic headwinds have turned against the brick-and-mortar pharmacy; for the past few years, particularly following the COVID-19 pandemic, major pharmacy chains have closed down physical stores in record numbers. CVS, the largest U.S. chain, closed 244 stores between 2018 and 2020 and announced plans in 2021 to close 900 more. Rite Aid, another major industry player filed for bankruptcy last year and will close up to 500 stores (Meyersohn, 2024). The complex drivers behind these unprecedented closures include technology influenced in consumer preferences, of which have led to difficult decisions being made by top executives desperate to keep their companies afloat. In this analysis, I will examine the worrying trends causing pharmacy chains to close once valuable brick and mortar stores, their effect on communities who depend on them, and how executives can tailor future business models to keep a valuable competitive edge going forward.

Major evolutions in consumer technology have created easier than ever access to prescription medicine for a buyer base that has become increasingly virtual. This is significant for the modern pharmacy, who generates more than 90% of its revenue from prescription drugs sold in physical stores alone (Fein, 2022). In the last decade, an increasing number of the traditional pharmacy consumer base has been shifting into telehealth and online pharmacy businesses. These types of drug providers offer a fully online service profile, and often simplify many of the in-person steps present in the current chain pharmacy system. The appeal of telehealth stores and online pharmacies became even more significant during the COVID-19 pandemic, which accelerated rates of online shopping and services from e-pharmacies, allowing them to transform into an integral part of healthcare provisions in developed countries (Fitter, Ambrus, Serefko, 2022). The success behind e-pharmacies’ multi-million-dollar business models has resulted from uniquely curated customer experience in which simplicity and convenience take the focus. By offering mail in and home delivery options, as well as customizable order lists and easily edited medical profile details, e-pharmacies and telehealth organizations have positioned themselves at the forefront of the pharmacy industry, all while avoiding the pesky overheads of brick-and-mortar stores.

The rise of e-pharmacies, as well as the inability of major pharmacy chains to adapt to new market conditions have resulted in major losses for the industry giants. Perhaps the most well-known pharmacy chain, CVS, slashed its annual profit forecast for 2024 and flagged challenges for next year's health insurance plans for older adults as its shares plunged more than 18% to a four-year low (Leo, Santosh, 2024). The overwhelming driver of this negative outcome has been pharmacy chains’ customer loss to better, simpler, and more efficient online prescription drug store services. With major chunks of their profitable customers moving to alternate options every year, top executives are left with no choice but to significantly reduce their brick-and-mortar stores, which cost millions to keep running while experiencing declining footfall. In the corporate boardrooms of pharmacy chains today, there is a palpable nervousness as leaders scramble to retain shareholder value and keep the brand names afloat.

Yet another consequence, often ignored among corporate and intellectual discourse, arises from the decommissioning of brick-and-mortar pharmacies: the effect on collective community health. Even before this recent crisis, the U.S. has been the home of numerous “pharmacy deserts,” or areas that are inadequately served by pharmacy establishments. One analysis demonstrated that in 2020 in the U.S., 48.1% of the population lived within 1 mile of a pharmacy, 73.1% within 2 miles, 88.9% within 5 miles, and 96.5% within 10 miles, and these numbers varied based on urbanicity (Kwan, 2024). The data shows that while wealthier and more urbanized communities are often overserved, many rural and inner-city communities lack a close, reliable source for them to obtain prescriptions and over the counter medicines from. Difficult access such as longer travel time or distance often contribute to a patient’s nonadherence, leading to poorer health outcomes and increased medical care costs from increased hospitalizations or emergency department visits for underserved communities. There is also sizeable evidence that points to systemic failures in pharmacy coverage for minority communities, particularly amongst African Americans and Hispanic Americans. A study by U.S. Pharmacist, a leading journal in industry trends and studies, found that when looking at the breakdown of the different communities living in pharmacy deserts, 5% of segregated white communities were pharmacy deserts compared with 29% of the integrated communities, 34% of the segregated Hispanic communities, and 54% of the segregated black communities (Kwan, 2024). These preexisting disparities between pharmacy coverage in the United States have only ben exacerbated by the store-closing crisis; many Pharmacy employees have staged walkouts in recent time to protest poor working conditions, hours, and pay. This toxic cocktail of economic, social, and technological drivers has resulted in pharmacy chains closing branches in low-income, majority Black and Latino neighborhoods to open in the already densely populated White and middle-income areas (Reeves, 2024).

As evolutions in technology and consumer preferences as well as new industry competitors have emerged, the pharmacy giants of the U.S, who once controlled a consolidated market share, are falling behind. In order for them to regain lost ground, these companies must begin a foundational overhaul, and refocus themselves on what matters most to consumers in todays world: ease of service and digital integration. In order to make the customer service process as easy and seamless as possible, executives must encourage the implementation of Artificial Intelligence. Pharmacies can use AI “chatbots” to auto-create patient profiles and allow instant updating of patient profiles if anything changes, allowing for both patients, pharmacies, and physicians to be updated with the most recent information at all times. It is also imperative that such technologies be backed by secure blockchain servers, to aid customer assurance that their data is stored securely. This AI model and blockchain implementation can give brick and mortar pharmacies the technological edge they desperately need over e-pharmacies. However, recouping the recent major losses entails more than just technological implementation; pharmacies must also seek to diversify their product range and service offerings. In addition to front of store retail, prescription medicine and the usual visual/hearing services, pharmacies should strive to integrate further patient care initiatives by introducing compounding services, which entails the creation of a pharmaceutical preparation—a drug—by a licensed pharmacist to meet the unique needs of an individual patient when a commercially available drug does not meet those needs (APHA, 2020). Pharmacies could also begin to provide mental counseling services to individuals at below traditional market rates as customer incentive and to spread mental health awareness to underserved communities.

There is no doubt that major U.S. pharmacy chains today face a tremendous balancing act: one of inviting back investors and reassuring stakeholders of their financial viability, reinventing their main business model to compete with e-pharmacies and telehealth companies, and ensuring the continuation and thriving of vital community health resources, especially for those who need them the most. It is a daunting task, yet when tackled systematically by addressing grassroots issues and implementing change to aging models, shifting into a focus on customer service/efficiency, and by ensuring continued service to disadvantaged communities, major pharmacy chains can be ensuring their success in this ever-evolving industry.