As Rite Aid seeks Chapter 11 bankruptcy protection, some industry watchers say the company's restructuring plans could be an opportunity for big strategy changes.
Rite Aid filed for bankruptcy Sunday after being unable to resolve financial woes and opioid-related lawsuits. It has shuttered hundreds of stores in recent years and is expected to close more. Rite Aid also is selling pharmacy benefit manager Elixir Solutions to MedImpact, another PBM, for $575 million.
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Rite Aid is looking to restructure more than $3 billion in debt. The company said lenders have committed $3.45 billion in financing to help support operations during the bankruptcy process.
The chain's struggles are the latest indication that the way traditional pharmacies used to compete no longer works.
Mega-retailers like CVS, Walgreens and Walmart are making bold moves into healthcare services and extending their reach into insurance, primary care and clinical trials. The companies are building more customer-centric care models, and with physical footprints becoming less important, investing heavily in digital capabilities. Technology giants like Amazon are also trying their hand at healthcare offerings.
Ash Shehata, national sector leader of healthcare and life sciences at KPMG, said Rite Aid's organizational restructuring is one step, but it needs to consider a larger repositioning.
"It's very hard for a traditional pharmacy retail[er] to stand still in this environment. You have to align yourself. Are you going to be an onliner, are you going to be a payer, or are you going to be a provider?'" Shehata said.
Jeffrey Stein, who was named CEO and chief restructuring officer at Rite Aid on Sunday, said in a news release he expects the bankruptcy to turn Rite Aid into a stronger company and to advance its "transformation initiatives."
Retail pharmacy is still a strong draw for consumers, but Rite Aid needs to align with what competitors are offering, said Nathan Ray, who leads the healthcare merger and acquisition practice at consulting firm West Monroe.
He said selling Elixir could free up the business to invest in other areas, possibly through community partnerships or enhanced telehealth services.
"[Pharmacies] all picked opposing corners of the same intersection in every town and were essentially competing on personal preference," Ray said. "That is all well and good when you have at least a healthy component of profitability in either the retail or the pharmacy side of the business, but both of those are highly competitive areas."
Making the transition to healthcare services, however, is a risky move and doesn't always pan out well for retailers.
Last week, Walgreens announced plans to close 60 clinics and cut $1 billion in costs by assessing expenses "line by line," reviewing contract work obligations and ending all non-essential projects. The company's rapid expansion into the healthcare services under former CEO Rosalind Brewer has not produced expected returns, leading to Brewer's departure and the appointment of Tim Wentworth as CEO.
Other companies have experienced missteps. Amazon, for example, shut down its medical care service Amazon Care in 2022 after deeming the model unsustainable. CVS is planning to exit clinical trials by the end of 2024 after three years in the space.
"Even though on paper all these strategies might sound great, the reality is it's still an uncharted world out there," KPMG's Shehata said.
