The Slow Death of the National Drugstore Chain

My grandfather Barney Liebman owned a drug store in Brooklyn. He went to pharmacy school and opened his own shop. He was always at the store, to make sure that everything was going well and also to make sure that all of the customers had a great experience when they ordered their malted milkshakes.

But that was a different era. Drug stores these days are dominated by Wallgreens, Rite Aid and CVS. They don’t get make their money with soda jerks and sundaes but with everyday essentials and convenience items. This is especially important because, until recently, convenience items couldn’t be bought online from Amazon. These are small, low-cost items where the shipping cost often outweighed the product’s price like toiletries, batteries, and small household goods. People couldn’t wait days to have them shipped. Plus, these for these items, the delivery cost was often more than the price of the item itself.

Over time, Amazon got better at delivering these items. The company invested billions of dollars in its logistics network, fulfillment centers, and advanced technologies like automation and robotics. These improvements allowed it to offer faster delivery without sacrificing profitability. Additionally, services like Amazon Prime, which initially introduced two-day shipping and later evolved to include one-day and same-day delivery, made it more convenient for customers to order these convenience items online.

These days, as Stratechery’s Ben Thomson says, you’re likely to get items faster from Amazon than going to the store:

I’ve found myself ordering exactly these types of items this summer to a much greater extent than I have in the past, because the time equation has flipped. Yes, I could go to the store right now and get what I need, but (1) I’m probably not going to go right now, and (2) I might forget or be pressed for time later; however, if I order from Amazon right now I know I will have what I need either by the end of the day or when I wake up in the morning. It feels silly to even consider going to the store unless I need the item in question in the next hour.

Ben Thompson, Stratechery, Google Decision Follow-Up, Amazon Earnings (August 2024)

At the same time, retailers started making enemies of their customers by locking up their products behind plexiglass barriers, in a paranoid attempt to curb theft. This tactic transformed the shopping experience into something akin to using a giant, frustrating vending machine—except there was no slot to insert money. Customers found themselves unable to browse or make impulse purchases, as everything from deodorant to laundry detergent was locked away, requiring them to track down an employee to unlock the cases. Often, these employees were hard to find due to chronic understaffing, leading to long waits and growing frustration.

Now we’re seeing the results. As more consumers opt for the convenience of online shopping, especially for everyday essentials, traditional retailers are feeling the squeeze. Revenue in physical stores, particularly in the health, personal care, and household goods categories, has started to decline. Chains like Walgreens and CVS, which once dominated this space, are experiencing drops in foot traffic and sales as customers increasingly prefer the speed and ease of ordering these items online from Amazon. The shift is evident in their finances as they report multiple consecutive quarters of declining same-store sales.

This transformation in the retail landscape is fundamentally about the evolution of customer experience. In the past, shopping was often a community-centered activity, where the personal touch and relationships, like those at my grandfather’s Brooklyn drugstore, played a crucial role in the overall experience. Customers valued the personalized service, the social interactions, and the sense of belonging that came with shopping locally. However, as consumer behavior has shifted towards valuing convenience and efficiency, the customer experience has changed accordingly. E-commerce giants like Amazon have leaned into this shift by offering an impersonal yet highly efficient shopping model, where convenience rules. The ability to purchase items from the comfort of their homes, combined with rapid delivery, has redefined what customers expect from their shopping experience.

This shift in customer expectations poses significant challenges for national drugstore chains, which have traditionally relied on their in-store experiences as a competitive advantage. These chains are uniquely positioned to offer personalized service, immediate access to products, and the kind of community interaction that online shopping can’t replicate. However, by increasingly locking up products, understaffing their stores, and creating a frustrating shopping environment, they are undermining their own strengths. Instead of enhancing the in-store experience to differentiate themselves from online competitors, they are making it less appealing, which not only drives customers away but also risks further eroding their market share and profitability. In their attempt to curb losses, they are inadvertently pushing more customers toward the very convenience that online giants like Amazon offer, effectively shooting themselves in the foot.