Walgreens Reduces Store Footprint, Shares Space with Doctors

Walgreens is shifting its retail strategy from traditional convenience stores with pharmacies to smaller facilities that focus on delivering wider access to healthcare services along with prescription drugs.

“Our footprint is bigger than it needs to be. Today, we’re focused on smaller stores and providing better access to healthcare,” Chris Noble, Walgreen’s divisional VP of real estate, told attendees at GlobeSt’s Net Lease Spring conference last week.

During a panel discussion on corporate tenant perspectives, Noble said the average size of Walgreens outlets, now about 13,500 SF in its 8,500 existing US outlets, will be reduced to a “mid-sized” footprint of between 5K and 10k square feet in new stores.

The retail pharmacy giant also is reducing its footprint in existing stores by offering 3,500 SF to primary care physicians and “corner spaces” to health insurance providers, Noble said. The shared space is part of a new corporate strategy to provide healthcare access to customers and to pull more people into the healthcare system.

“We’re partnering with the large health insurance companies by providing them with little corners in our stores as a way for them to engage with customers and help them get their medications,” Noble said.

Walgreens also is expanding its small, drive-thru pharmacies this year from 72 facilities to 180; the company plans to add 50-60 of the drive-thru outlets each year.

“They’ll be in targeted areas where we don’t think a full-sized model can be supported,” Noble said.

As it shifts away from a convenience store model to a more destination-oriented business strategy focused on healthcare services, Noble indicated that Walgreens, which pays about $2.8B annually in rents, expects to have more flexibility in choosing space to rent.

“Our business is becoming less dependent on convenience. If we have a store where we pay $500,000 in rent and a couple blocks away the rent is $250,000, we’ll consider that,” he said.

“We’re less willing to pay up for the A+ real estate than we would have been historically. We’ve found that a B or B+ property would be much more financially viable,” he added.

Walgreens has closed 1,000 stores in the past few years as part of what Noble calls its “portfolio optimization.” When the company has been unable to negotiate a buyout with a landlord, it has found other tenants to take leases.

GlobeSt recently reported that Chunker, a national online platform that lists temporary warehouse space, has added several empty Walgreens outlets to its current listings.