Drug Stores

The drug store segment is contracting and could consolidate further if Rite Aid can’t get its debt under control. CVS Caremark gobbled up Longs Drug Stores last year, giving it more stores than its lone healthy national rival, Walgreen. Earlier this year, Walgreen acquired Drug Fair pharmacy locations — not numerically significant, but strategically important in New Jersey. Rite Aid is closing more stores than it is opening and Duane Reade, a major force in the New York metropolitan area, is the only other drug chain generating as much as a billion dollars in annual revenues.

Drug stores, of course, are not the only source for prescription drugs: big-box operators, supermarkets and even small-footprint discounters like Fred’s have pharmacy counters. How long even that remains true depends upon the Obama administration and Congressional Democrats’ approach to pharmaceutical reimbursements as they attempt to revamp the nation’s health care system.

What happens on the national level could drastically alter how drug stores do business, and retailers are already adjusting their business models — CVS by integrating its retail operations with Caremark’s pharmacy benefits management expertise, and Walgreen by slowing the pace of expansion to squeeze more productivity out of existing units.

Walgreen is in the midst of reconfiguring up to 400 stores this year by lowering fixtures, reducing front-end SKUs by 15 to 20 percent and replacing slower-moving merchandise in favor of “affordable essentials” that focus on health, wellness and convenience.