CVS slows expansion plans

Photo | CNN A CVS storefront.

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By Zachary F. Vasile | Journal Inquirer

Citing market saturation limits and the rise of home-delivery options, CVS Health is easing up on brick-and-mortar expansion and expects to open only one-third of the stores it originally planned to in 2019.

During a conference call with analysts this month, CVS Pharmacy President Kevin Hourican said his division is on track to add about 100 stores this year, down from the 300 it usually debuts annually. That number will fall even further in the year 2020, Hourican added, when only 50 new locations are slated to launch.

Executives linked the slowdown to the company’s current dominance in many regional markets and the expansion of its home-delivery services, which aim to lower costs associated with brick-and-mortar operations by routing medications directly to patients.

CVS is also focusing on converting existing locations into “health hubs,” which come with a wider range of health-related products and services. Those include on-demand ordering kiosks, a broader array of durable medical equipment, in-store dietitians, increased support for patients with chronic conditions, and customer engagement centers, which will host classes, nutritional seminars, and other functions.

CVS Health President and CEO Larry Merlo pointed out that company officials are constantly reviewing real estate holdings and often step in to close under-performing locations, meaning there is always some slack in the total store count.

“We have extreme flexibility in our portfolio,” Merlo said. “And with the number of leases that come up on an annual basis, we review the productivity of the entire fleet and have flexibility for probably on average about 500 locations every year.”

Hourican said CVS will continue to open new stores in markets where the pharmacy chain is underrepresented, such as the Pacific Northwest, and in high-growth areas, such as New York City and Texas.

CVS Health — which alongside its retail pharmacy business operates prescription benefit manager Caremark and subsidiaries such as CVS Specialty and the MinuteClinic — is in the process of absorbing Hartford health insurer Aetna.

The two companies finalized their $69 billion merger in November, but a federal judge is continuing to evaluate the tie-up and its potentially adverse effects on consumer choice and market concentration. A ruling is expected this summer.