Rite Aid, one of the largest pharmaceutical chains in the United States, has officially filed for bankruptcy court protection as of October 15th, 2023. This well-known chain with approximately 2,100 stores in the United States has been battling billions of dollars of debt, countless lawsuits regarding illegal prescriptions for painkillers, and an overall decline in performance. With so much to unpack here, let’s start with the most recent headlines: Rite Aid files for bankruptcy.
There could be numerous reasons for a company to file for bankruptcy: poor management, the economic environment, liabilities, the list goes on. In the case of Rite Aid, it is clear that between the debt on their balance sheets and legal issues, Rite Aid placed themselves in a poor corporate position in a cutthroat industry, which led to failure. Rite Aid specifically filed for Chapter 11 bankruptcy protection, meaning they will not go out of business and will continue to restructure behind the scenes to recover to normal conditions. Rite Aid will have to proceed with a reorganization plan, which is known to be one of the most complex and expensive in any bankruptcy proceeding. They appointed a new CEO, Jeffery Stein, who will take over leadership for this rebuilding. Stein comes from a background of rebuilding broken companies through his own financial advisory firm the Stein Advisors. With about $4 billion in debt, Stein has his work cut out for him.
Taking a look at what caused this, as stated before, Rite Aid possesses a lot of debt and has struggled in overall sales and growth. With employees reporting poor management publicly and the inability to expand as a company, we are now seeing the results of this business plan. Even though the COVID-19 pandemic brought in business for Rite Aid, they remained unprofitable. As of October 23rd, 2023, Rite Aid has a market cap of only $36.8 million. In December 2016, Rite Aid had a market cap of about $8.67 billion. Competitors such as CVS, Walgreens, Walmart, and Target, continue to hold the lead ahead of Rite Aid and will now continue to succeed as consumers may opt to choose a new shopping location.
In addition to Rite Aid’s debt and declining growth, the flood of lawsuits continue to harm business. Claims of unlawful dispensing of controlled substances and overprescribing pain medication, discarding internal information pertaining to suspicious prescriptions, and suspicious managerial behaviors are piling up for Rite Aid. Rite Aid has denied these allegations despite innumerable skeptical averments. Other companies that were stated earlier – Walgreens, CVS, and Walmart – have agreed to pay over $13 billion over past years to settle opioid crisis suits: suits similar to Rite Aid’s legal problems. With Rite Aid failing to take responsibility for these claims, it could continue to hurt their public image and furthermore lose customers.
As stated earlier, Rite Aid filed for Chapter 11 bankruptcy protection, meaning it will continue operations while restructuring. Now that we know what caused this situation, what will Rite Aid do to handle it? To start, the new CEO Jeffery Stein and his experience provides solid ground to lift off on. Rite Aid is also holding an auction to find the highest bid to sell their Elixir segment. In addition, Rite Aid will be closing 154 stores in more than 10 states to start saving money on rent and achieve a better financial situation. These closings are trying to save the company money by reducing rent costs to begin improving its financials. More closures are to be expected in the future, that of which could include letting go of some of the 45,000 employees and 6,100 pharmacists. Furthermore, this will mean some crowds of consumers could lose their local or go-to pharmacies.
Overall, through Rite Aid’s trials and tribulations, they have a solid ground to begin this new phase for the company. Although they are struggling financially and legally–which could hurt their public image–I see Rite Aid having a rough, but possible path ahead of them. However, only time will tell.
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