Revamping Store Formats

CVS Health is set to implement a significant change in its retail strategy by reducing the number of traditional store locations by half. This transformation will also see the elimination of certain product categories, including skincare items, pretzels, and stationery typically found in full-sized pharmacies.

Plans for New Ministores

As part of this strategic transition, CVS is preparing to launch 12 ministores across various U.S. cities and towns next year. These compact locations will primarily offer pharmacy services along with essential healthcare items such as over-the-counter pain relief and first aid supplies. Unlike conventional CVS locations, these ministores will forgo the sale of many consumer goods, including shampoos and greeting cards.

Store Size and Development Timeline

The upcoming ministores will range between 5,000 and 11,000 square feet, substantially smaller than typical CVS outlets, which often span between 11,000 and 15,000 square feet. CVS aims to open its first few ministores by the end of 2025, marking an important milestone in the company’s store development strategy.

Focus on Pharmacy Sales

According to a report by the Wall Street Journal, pharmacy sales account for 78.9% of CVS’s revenue, with the remaining 21.1% stemming from sales of front-store items. Julie Atterback, a senior equity analyst at Morningstar, noted that concentrating on pharmacy services aligns with where most of the company’s value is generated. “That’s where most of the value is generated,” Atterback mentioned, highlighting ongoing challenges in store operations.

Market Challenges

CVS’s decision to close numerous locations stems from competitive pressures, particularly from retail giants like Walmart and online merchants like Amazon. Sales within traditional store categories, such as snacks and toiletries, have declined as consumers shift their purchasing habits. To mitigate these challenges, CVS has closed approximately 900 stores over the past three years – while simultaneously opening 100 new ones – and plans to close an additional 270 locations in 2025.

In a broader context, rival Walgreens is also undergoing similar transformations, announcing plans to close 1,200 stores over the next three years, with an additional 500 closures anticipated by 2025. Moreover, Walgreens recently agreed to a $10 billion acquisition deal with private equity firm Sycamore Partners as part of its strategic turnaround.

Conclusion

As of December 31, CVS operates over 9,000 locations, solidifying its position as the largest pharmacy chain in the United States. The introduction of ministores is a response to evolving market dynamics, emphasizing the need for companies like CVS to adapt to changing consumer behaviors while reinforcing their core business of pharmacy services.