It’s been a very tough time to be in the retail business. Thousands of stores nationwide been closed over the past two decades because of e-commerce adoption, and the situation has accelerated since Covid forced more consumers inside and online.
Once formidable major retailers like Sears have been shuttered, and even retail store chains considered essential like pharmacy’s have been stung by shifting consumer trends as competition has intensified.
It has gotten even harder to eke out a living as a retailer since inflation skyrocketed in 2022, crimping budgets. Inflation has eased a bit since then, but prices are still climbing and cash-strapped consumers have largely rotated away from discretionary purchases that retailers rely on.
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In February, the Consumer Price Index showed inflation had increased to 2.8% from 2.4% last September, raising concern that prices could reignite, something even more in focus following newly instituted tariffs on imports that add more price pressures.
Worse, fears of economic recession are mounting this year as unemployment climbs.
Altogether, the backdrop has created an environment where even the strongest retailers are struggling. Weaker retailers? Well, they’re on the ropes.
A retail reckoning forces companies into bankruptcy
Chapter 11 bankruptcy allows retailers to pare expenses and debt, giving them wiggle room necessary for a shot at survival. However, bankruptcy remains a last resort for companies.
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Bankruptcy protection means damaged relationships with suppliers, bankers, workers, and customers. As a result, suppliers may cut off retailers, banks may not lend money necessary to operate, and workers and customers may move on to greener pastures.
Nevertheless, sometimes bankruptcy is the only option. Increasingly, that’s been true for many companies.
It may be hard to believe today, but Sears ran 700 stores when it filed for bankruptcy in 2018. Bed Bath & Beyond had 1,500 stores in 2018, but fewer than 300 in 2023 when it went bankrupt, and none are open anymore. Christmas Tree Shops operated more than 80 stores before all were closed when it went bankrupt.
The economy has certainly been a driving force behind the retail reckoning, but fierce competition hasn’t helped.
Walmart, Target, and Costco Wholesale have all seen significant revenue growth over the past decade as they successfully leverage their size to offer consumers lower prices, and expand into new markets.
Walmart and Costco’s revenue have risen to $681 billion and $254 billion in 2024 from $408 billion and $78 billion in 2010, respectively.
One retail industry disrupted by big-box retail and new competition is retail pharmacy. Particularly hard hit has been Rite Aid.
In addition to fending off larger department stores, the national chain counted on by millions for essentials from toothpaste to prescriptions has also lost market share due to upstarts like Mark Cuban’s CostPlus Drug Company, a low cost mail order pharmacy, and Hims, a direct-to-consumer, subscription-based telehealth platform.
Rite Aid enters, exits bankruptcy but woes remain
Rite Aid spent a lot of money acquiring rival pharmacies, including Brooks, in a bid to keep pace with Walgreens and CVS Health. The spending accelerated its retail footprint, but also saddled it with a mountain of debt that needed to be refinanced at higher rates when it came due.
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The weight of its debt was already taking a toll before Covid struck. It attempted to sell itself to Walgreens in 2015, but the deal was revised after the U.S. government objected for antitrust concerns. Walgreens wound up buying 1,932 Rite Aid stores and three distribution centers for $4.38 billion in 2018. A deal to sell itself to Albertsons was also scuttled in 2018.
Rite Aid continued to try to find a buyer but by 2022, when the Fed hiked interest rates, making debt refinancing more costly, it was in dire straights.
The final blow came in March 2023. The Department of Justice filed a civil suit against Rite Aid alleging pharmacists “repeatedly filled prescriptions for controlled substances with obvious red flags” and that Rite Aid “intentionally deleted internal notes about suspicious prescribers.”
Similar suits had previously been settled by Walgreens and CVS Health for $5.7 billion and $4.9 billion, respectively, figures that Rite Aid couldn’t match.
As a result, Rite Aid officially filed for Chapter 11 restructuring on October 15, 2023. While in bankruptcy, it cut deals with lenders, closed over 500 stores, roughly a quarter of its locations, and settled the Justice Department’s suit for $7.5 million and an unsubordinated, general unsecured claim of $401.8 million.
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The company exited bankruptcy in September 2024, saying at the time it “has successfully completed its financial restructuring and emerged from Chapter 11, marking a new beginning as a stronger company with a rightsized store footprint, more efficient operating model, significantly less debt, and additional financial resources.”
Unfortunately, the restructuring may not have been enough to guarantee Rite Aid’s success, according to a Wall Street Journal report.
The WSJ said on April 4 that Rite Aid’s management is seeking buyers again and contemplating another bankruptcy filing. Reportedly, Rite Aid is exploring its options with law firm Paul Weiss.
There’s no telling what might happen to Rite Aid’s remaining 1,300 stores if it sells itself or enters bankruptcy protection again. It’s certainly possible more stores will close, leaving additional customers in the lurch, searching for a new pharmacy.
One potential option may be to follow in Walgreens footsteps. In March, the nation’s second largest retail pharmacy chain agreed to sell itself to private equity player Sycamore Partners in a deal worth about $10 billion.
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