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The HRG Team

Walgreens Store Closures: What Retail Suppliers Need to Know—and How to Prepare



As Walgreens announces the closure of 1,200 U.S. stores over the next three years, suppliers are understandably concerned. With 500 stores expected to shutter in the current fiscal year alone, this news brings a wave of challenges that will inevitably impact supply chains and supplier relationships. However, by taking proactive steps to mitigate the impact, suppliers can regain a sense of control in this situation. Here’s what you need to know—and how to prepare.

What’s Happening at Walgreens?

Walgreens recently reported a net loss of over $3 billion in the last quarter of 2024, mainly due to tight prescription drug reimbursements. In response, the company is shifting its focus to become a specialty pharmacy that caters to patients with complex and chronic conditions. While this strategic move has boosted total sales by 6%, reaching $37.5 billion in the last quarter, the downside is the planned closure of 1,200 stores across the U.S.

For suppliers, these closures could have significant implications, ranging from product redistribution to markdowns, potential phantom inventory issues, and deductions related to damaged or destroyed merchandise.

Key Challenges Suppliers Might Face

1. Product Redistribution or Removal When stores close, the retailer often pulls back inventory to redistribute high-turn items to other stores. However, slower-moving products are usually marked down and sold through clearance. This typically means providing a trailing credit or funding to support the markdowns for suppliers. In cases where products can’t be sold, they are marked as damaged or destroyed, resulting in chargebacks to the supplier. Getting ahead of this process is essential to avoid being blindsided by unexpected deductions.

2. Phantom Inventory Issues Phantom inventory—when the system shows a product in stock but not on the shelf—can lead to costly problems. In the aftermath of store closures, you might be billed for merchandise that doesn’t physically exist. To avoid this, consider sending a third-party store audit team to verify the actual inventory in closing stores. This can help you avoid paying for products that were never there to begin with.

3. Return Threats and Additional Deductions One of the biggest risks suppliers face is the potential return of unsold merchandise. If you don’t offer funding for markdowns, Walgreens could threaten to return the inventory, charging you for handling, freight, and the cost of the merchandise. Unfortunately, once you receive returned goods, reselling them as new is typically not an option—especially in the aftermath of cases like the Tylenol tampering scandal, which has made returns a delicate issue due to consumer safety concerns. Instead, it’s better to offer a flat fee or per-store payout to cover inventory in closing stores, reducing the chances of an audit and gaining more certainty in your accruals.


Steps Suppliers Should Take Now

1. Be Proactive Reach out to your buyer as soon as possible. Acknowledge that you’re aware of the store closures and offer strategic solutions, such as providing funding to assist with the markdowns or offering a flat fee to cover inventory in closing stores. Buyers appreciate when suppliers get ahead of the situation, and it’s much better to negotiate a flat fee upfront than to deal with escalating costs later.

2. Plan for Deductions Suppliers should expect a wave of deductions tied to these store closures. Whether it’s markdowns, product removal, or return threats, the sooner you open the conversation with the buyer, the sooner you can control how much you’ll pay. Offering funding in advance of the closures helps you budget more effectively and keeps you off the auditor’s radar, reducing the risk of additional claims.

3. Keep Tabs on Phantom Inventory Don’t let phantom inventory lead to unnecessary costs. By conducting store audits, you can verify shrink levels and protect yourself from paying for products that aren’t physically present. The last thing you want is to be billed for damaged or destroyed items that never existed in the first place.


HRG Can Help

Dealing with store closures and the associated deductions can be overwhelming, but you don’t have to go it alone. HRG’s expert team is here to help you navigate the complexities of product removals, markdowns, and deduction recovery. We can assist in identifying your liabilities, help you accrue the right amount of funding, and ensure you’re not overpaying for phantom inventory or unexpected returns. With our support, you can face these challenges with confidence.

Contact us today for a consultation, and let us help you make smarter, more strategic decisions. As always, our goal is to help retail suppliers like you make wiser decisions and face fewer deductions.

Learn more: Tune in to The Savvy Supplier Podcast Finally, a Podcast for all Retail Suppliers!  Our goal is very practical:  We will save you Time & Money.  Boyd Evert will give you actionable expert advice to make Wiser Decisions and get Fewer Deductions.  Click below.



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