Rite Aid Enters Bankruptcy Again: Struggles and Prospects

Rite Aid has filed for bankruptcy once more, just seven months after emerging as a private entity from a previous Chapter 11 bankruptcy. The struggling pharmacy chain announced on Monday that it is in search of a buyer, and re-entering Chapter 11 is intended to facilitate this process. Despite these challenges, Rite Aid intends to keep its stores open during the bankruptcy.

CEO Matt Schroeder expressed optimism despite the financial difficulties, which have been aggravated by rapid shifts in retail and healthcare sectors. Schroeder noted notable interest from prospective national and regional buyers. “As we move forward, our priorities are to ensure our pharmacy services remain uninterrupted for customers and to preserve as many jobs as possible,” he stated.

Rite Aid initially declared bankruptcy in October 2023, affected by the harsh realities of the drug store sector, its lower status compared to larger chains, and costly legal issues amid accusations of illegally filling opioid prescriptions. These factors collectively led to nearly $4 billion of debt.

The company spent roughly a year in the Chapter 11 process, eventually emerging by September 2024. It managed to cut $2 billion of its debt, secure $2.5 billion to continue operations, and closed approximately 500 locations.

Rite Aid announced on Monday that it has secured approximately $2 billion in new financing to sustain operations during the current bankruptcy proceedings.

Currently, Rite Aid stands as the third-largest standalone pharmacy chain in the U.S. and is seventh overall when including larger retail chains. Its store count has dwindled to about 1,250, which is half of its size compared to just two years ago.

In 2015, Walgreens proposed a $17 billion acquisition of Rite Aid, but regulatory concerns over federal antitrust laws preventing reduced competition halted the deal. Eventually, in 2017, Walgreens bought nearly 2,000 Rite Aid stores for $4.4 billion. This left Rite Aid significantly smaller and unable to compete with the dominant players.

Neil Saunders, managing director of GlobalData, wasn’t shocked by Rite Aid’s second bankruptcy filing, citing ongoing inventory challenges. “The first bankruptcy didn’t solve the chain’s core issues, leaving it precariously close to failing,” Saunders explained.

With Walgreens out of the picture for a complete buyout, Saunders anticipates other chains might selectively purchase Rite Aid stores.

This bankruptcy coincides with challenges faced by Rite Aid’s competitors. In March, Walgreens Boots Alliance disclosed its transition to a private company in a deal valued at up to $24 billion, following significant losses on public markets and closure plans for over 1,200 stores. This deal should conclude within the year.

CVS has similarly shut down more than 1,000 locations and enacted substantial layoffs. The company is now testing smaller stores focused purely on pharmacy services.

All three chains have been hit by reducing prescription reimbursements, plummeting their market value from $100 billion to around $9.5 billion over the past ten years. Additionally, they’ve struggled with expansion, turning into convenience-like stores that try and fail to compete with the likes of Amazon and Target. Theft has also plagued their profitability, impacting their bottom lines.