Major Walgreens Store Closures Underway: What’s Next for Unoccopuied Retail

With Walgreens announcing that 25% of its locations are underperforming and

continuing store closures, many speculate about the future of these large vacant

spaces. Over the past 10 years, the pharmacy giant has closed roughly 2,000 locations,

including 484 stores as of February this year alone.

According to Todd Maxwell, president of MX Properties, two trends that could be driving this are the increased cost of capital and ongoing consolidation in the retail pharmacy space.“Walgreens faces more competition than it did a couple of decades ago with grocery stores building out large pharmacies, and the rise of online options such as Amazon,” says Maxwell.

Amazon recently launched its Prime subscription model for generic medications. For $5 a month, members gain access to a wide range of generic drugs at a flat rate.

As the industry undergoes transformation, the cost of borrowing also plays a significant role. “Corporate debt is coming due,” says Maxwell. “When refinancing, retailers face a rate environment that is 200 or 300 basis points higher than pre-COVID, which drives up costs.”

As these large pharmacy retailers go dark, property owners are carefully planning their

next moves.

The ideal tenants for former Walgreens locations

The good news for landlords of vacant Walgreens spaces is that the locations are

ideally situated and highly valuable. “These are very visible locations, often located on

the best highway systems for ingress and egress,” says Maxwell. “When you have

valuable real estate like that, the real question is what’s the easiest way to find a tenant

under the same land use ordinance zoning classification to backfill without a lot of

trouble or costs?” Maxwell notes that Dollar Tree stores often fit the bill.

“Dollar Tree has been very active, from what I’ve seen,” says Maxwell. “They have a

similar footprint to the former Walgreens stores, and while I’m not sure how many more

of these deals will get done, it’s worth exploring.”

In addition to proactively targeting retailers with similar footprints, many landlords are

using creative strategies to fill the open spaces.

Creative alternatives for former Walgreens spaces

Another possibility for these large retail spaces is splitting them for multi-tenant use,

notes Maxwell. “I recently saw this done with a Panera, a Footlocker, and a third

business – and it turned out very nice.”

While it’s true that additional costs exist with this type of strategy, there are other

options, such as churches and daycares, which typically require large spaces. However,

Maxwell advises careful attention to zoning, engineering, and traffic considerations. “At

the very least, you’re going to have to get special exceptions from many of the

municipalities to allow those different types of businesses to operate,” says Maxwell.

With any of these options, it all comes down to the property owner’s situation, what they need to make it worth it, and how everything is penciled out.

Will Walgreens store closures continue?

As the industry undergoes a period of consolidation, more store closures are likely.

Businesses are making hard choices between streamlining operations, cutting back, or

increasing consumer prices. “I think it’s fair to say at this point the consumer has had

enough of price increases,” says Maxwell.

However, Maxwell explains that if there’s one thing the retail industry is really great at,

it’s reinventing itself. “Retail has gone through e-commerce disruption, they’ve gone

through COVID, and they’re resilient. The industry has always had a way of staying

innovative and novel – because it’s necessary to keep up.”

Nicki Howell is a freelance writer with over a decade of experience reporting on commercial real estate. Her writing has been featured in leading publications, including GlobeSt and other top industry outlets.