Rite Aid Closing Stores, Doubling Down on Loyalty and Elevated Digital Experiences
Rite Aid corporation plans to close a total of 145 “unprofitable” stores as part of its optimization efforts. The company had announced it was closing an initial 63 stores in December, and is looking to save in administrative and labor costs and make improvements across payroll and the supply chain, with total savings expected to reach $170 million in 2023.
During the latest earnings call, Heyward Donigan, Rite Aid chief executive officer, said the company expects EBITDA growth of 10% to 20% for fiscal 2025 from 2022 levels as a result of these changes, as well as a renewed focus on digital investments and the consumer experience.
The store closings come in response to significant challenges the company faced due to the pandemic, including supply chain pressures that influenced inventory and sales, shifting store traffic due to increased work-from-home trends, and a tightening labor market.
Matt Schroeder, Rite Aid’s executive vice president, said the company performed “a very comprehensive review” in the last six months of its store fleet, going store by store to look at cost-saving measures. He added that the company has a set of underperforming stores on a “watch list,” and the company will continue to monitor conditions to determine if further store closures are necessary.
Rite Aid’s closures closely follow CVS’ strategy to align its retail stores to evolving customer needs. Over the next three years, CVS plans to close 300 stores per year, focusing on developing store strategies to improve consumer engagement.
[Related: CVS Closing 900 Retail Stores Starting in 2022]
Pivoting to New Store Formats
Rite Aid is also pivoting, with its next phase zeroing in on small-format stores focused primarily on pharmacy offerings, where access to pharmacy is limited. Rite Aid is looking to expand into new markets and improve access to underserved communities. Donigan expects the internal rate of return for these stores will be over 25%.
Additionally, the company is looking to expand on partnerships with consumer-oriented brands in order to build out its store-within-a-store presence. Donigan stated in the last few months, the company has already won four next contracts that will impact over 800,000 lives as part of this initiative.
Rite Aid is also looking to invest in new offerings in order to “meet the evolving needs of customers and organizations.” This includes expanding its health plan business and improving outcomes by increasing engagements across its in-store pharmacies.
A Look at Loyalty and Digital Experiences
The company has identified several growth opportunities, including growing its own-brand portfolio of products and expanding its e-commerce presence with heightened digital experiences. Rite Aid has invested over $300 million in capital over the next three years to enhance its digital experience and modernize its tech stack to support its retail stores and pharmacies, improve back-office productivity, and grow its digital business.
Additionally, the company is continuing to invest in its newly updated loyalty program, which launched late last year. Rite Aid worked with dunnhumby to revamp its price, promotion and loyalty programs, leveraging consumer data models and insights to improve customer value perception digitally at more than 2,500 stores in 17 states. Schroeder expects that loyalty card program changes and own-brand initiatives will drive an incremental $30 million in gross profit dollars.
Tied to the consumer engagement push is the growth of its company-owned Elixir membership — the tech that’s supporting its pharmacy care experience. Rite Aid said it is on target to sell 300,000 new members for January 2023.
“We exceeded our 2022 plan amid continuing challenges of the COVID-19 pandemic. As we look forward to the year ahead, we are ready and energized to compete in a new post-pandemic normal,” said Donigan in the company’s earnings report. “We demonstrated the important role that pharmacists play in the everyday health of our customers and are well positioned to grow in a trillion-dollar pharmacy market through our continued leadership as a full-service pharmacy company.” — Heyward Donigan, CEO, Rite Aid
