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Rite Aid’s Empty Storefronts: What Will Fill Them?
Rite Aid’s Empty Storefronts: What Will Fill Them?
The national drugstore chain went officially bankrupt this October, with hundreds of closures likely
BY ANNA STAROPOLI OCTOBER 20, 2023 11:06 AM
Rite Aid needs more than a Band-Aid — as does the retail space left behind by the bankrupt drugstore. Still, the imminent closure of dozens, maybe hundreds, of stores offers opportunities to landlords and tenants alike.
On Oct. 15, Rite Aid filed for bankruptcy, citing plans to undergo financial restructuring. As the country’s third-largest drugstore chain, Rite Aid operates more than 2,000 stores across 17 states. The Chapter 11 filing will empty more than 100 of those stores, and a September Wall Street Journal report said that number could grow to between 400 and 500 locations.
In the bankruptcy notice, Rite Aid additionally outlined its intention to sell Elixir Solutions, the corporation’s pharmacy benefit provider. It also announced — in a statement separate from the bankruptcy notice — Jeffrey Stein as the company’s new CEO.
“Rite Aid has been going bankrupt for the past decade, so I think [the bankruptcy] doesn’t come as a real surprise,” said Jeffrey Roseman, a vice chairman at Newmark (NMRK).
Days after the Chapter 11 announcement, A&G Real Estate Partners, real estate adviser to Rite Aid Corporation, specified plans to sell 78 neighborhood pharmacies across nine states — both Rite Aid and Bartell Drugs, a Seattle chain owned by Rite Aid — as well as 21 fee-owned properties in 11 states. Pending court approval, these sales include three Manhattan stores that are now available to lease, as well as one in Queens. According to Rite Aid’s website, five locations remain in Manhattan, with more spread across New York City’s other boroughs.
The company began in 1962 as Scranton, Penn.’s Thrift D Discount Center, and, while it did thrive for decades, the bankruptcy caps off recent years of economic and social struggles. These include billions of dollars in debt, a series of opioid-related lawsuits, and underperforming retail sales. More than 200 Rite Aid stores have closed since 2021. A bankrupt Rite Aid, too, means a slew of setbacks for landlords, shoppers and retailers in New York City and beyond.
“The ones that suffer the most [are] the landlords, the employees, the city and state because of all that tax revenue,” said James Famularo, president of Meridian Retail Leasing.
No one reason explains the drugstore’s drop-off. Rather, multiple factors — high rents, management issues and thefts, to name a few — have compounded, influencing storefronts to close their doors. “They’re not closing because there’s no business,” Roseman said. “They’re closing because they just sort of had a lot of stumbles along the way.”
“Years and years of accumulating debt and not really having the cash flow and the capital to renovate the stores made Rite Aid sort of third out of three,” said Chase Welles, a partner at the Shopping Center Group.
Rite Aid trails behind CVS and Walgreens, though all three have confronted a variety of similar blowbacks and undertaken cost-cutting. In July, Walgreens announced it would shutter 150 stores in the United States and roughly 300 locations in the United Kingdom. In early October, Walgreens employees organized a walkout in opposition to overworking with low pay. Meanwhile, CVS workers in Kansas City also staged a walkout, garnering support from CVS employees and pharmacists across the country.
The pandemic and post-pandemic years have seen staffing shortages and setbacks across pharmacies, though even in years prior, studies show that approximately one in eight U.S. pharmacies closed between 2009 and 2015.
And none of that even touches on the opioid lawsuits, which have saddled all three major chain drugstores with controversy.
Within this climate, theft has climbed Rite Aid’s list of economic difficulties. Go into any Rite Aid in New York City, and you’ll notice swaths of items locked up or positioned just beyond reach. Rite Aid has attempted to combat a steady stream of shoplifting, which has contributed to significant financial losses and created a less-than-ideal shopping experience. Famularo, for instance, stopped inside a Rite Aid for mouthwash, only to wait in an aisle for someone to unlock it. After waiting 20 minutes, it feels easier to order your items on Amazon, he said.
“[Theft] really hits the bottom line of these retail sales,” said Andrew Mandell, a vice chairman and principal at Ripco Real Estate.
Given the overlap between retail and robberies, New York Mayor Eric Adams has announced plans to reform retail theft penalties, as New York City saw more than 22,000 retail thefts in 2022. In September, Target singled out theft as a primary reason for closing nine locations across the country, including one in Manhattan.
Yet, while robberies intersect with brick and mortar, Rite Aid’s bankruptcy isn’t all bad for the future of retail. The post-COVID era, as well as increased online spending, has contributed to an evolving — but carefully curated — retail landscape, said Welles.
The shuttering of Rite Aid locations in New York, for example, presents an opportunity to refresh the city’s retail offerings. “A lot of these tired, old stores are gonna get replaced with some new concepts,” said Welles, who believes the absorption will happen quickly.
Richard Latella, an executive managing director at Cushman & Wakefield (CWK), likewise said he’s confident that New York City’s Rite Aids will get re-leased. Since Cushman & Wakefield started tracking the market in 2007, the overall vacancy rate for retail is at its lowest point, Latella said, with the caveat that rent prices may not look the same as Rite Aid’s current ones.
“With drugstores having been so aggressively looking to move into the different borough locations, some of them were willing to pay high rents,” he said. “I think that you’re going to see demand for the locations, but maybe not necessarily at the same rent levels.”
Roseman, however, hesitates to call New York City’s vacant Rite Aid locations desirable, as they tend to occupy secondary corners. A few years back, a now-shuttered Rite Aid occupied the corner of 13th Street and Sixth Avenue in Greenwich Village: a location considered secondary to a more marquee outpost like 14th Street and Fifth Avenue, where CVS currently occupies a storefront, said Roseman.
Rite Aid has never had the same presence in New York City that Duane Reade or CVS have had, Roseman said. Even so, he predicts that the neighborhood locations of New York City’s Rite Aids will appeal to service-type tenants.
That is, so long as landlords are willing to get creative with how they lease — and divide — the space. “I always say to my customers, I’ve never met a space that I couldn’t rent as long as the landlord is ready, willing and able,” said Famularo.
In the case of the vacant Rite Aids, landlords might need to be ready, willing and able to address the size of each store. As a catch-all for pharmacy needs and miscellaneous grab-and-go household items, Rite Aids tend to have large footprints, so finding a new occupant that requires the exact square footage of the store’s space is challenging.
The pool of tenants that need space the size of a drugstore has shrunk, said Mandell. Those differences in square footage may contribute to how quickly Rite Aid spaces get absorbed, he said. For reference, many typical Rite Aids span between 11,000 and 15,000 square feet.
Landlords, however, can circumvent those size specifics by dividing any given Rite Aid into multiple stores that suit multiple tenants. This can be done with new walls, and by separating and potentially upgrading utilities, among other techniques, said Mandell.
“Maybe we could rent the lower level to a gym and the ground floor to a larger restaurant,” said Famularo. “There’s many, many different options, as long as the column spacing is in your favor, as long as the building bylaws or the condo bylaws are in your favor.”
Granted, these changes don’t come cheap. Owners will have to pay to divide those spaces, said Mandell, though the cost of such conversion is likely to pay off. “If you’re an owner, you have to have the wherewithal to do that, and some do and some don’t,” said Mandell. “Those that do will find it easier to lease these spaces.”
As for what the vacancies mean for shoppers? That depends on the tenants that take over the space, as well as the drugstores that remain nearby. Given Rite Aid’s presence across multiple states, the ramifications of store closures vary widely across markets. More rural shoppers may lack access to medications or other household necessities should their only Rite Aid close.
In 2022, Rite Aid launched a pilot program to introduce smaller-format stores of approximately 3,000 square feet to pharmacy desserts in rural areas. It is unclear whether these stores will be affected by the bankruptcy.
“In smaller towns, it’s obviously a bit more felt,” said Roseman. “But, again, where you see a Rite Aid, you generally see CVS or a Walgreens, and vice versa. And, where you don’t see one of the other drug chains, you see a Walmart or somebody else who can fill prescriptions.”
Then, there are online options. CVS, Walgreens and Rite Aid — as well as Walmart and Amazon — have all bolstered their digital stores, said Latella, who believes competitors can pick up the slack left behind by Rite Aid closures.
In Manhattan, new and interesting tenants may take over Rite Aid’s empty stores. These retailers could include supermarkets, which are rapidly growing in New York City, as well as dollar stores or quick-service restaurants. Likewise, pet stores — which exploded during the pandemic when people were stuck at home — could wind up in old Rite Aids, said Latella.
Smaller format apothecary stores may also come back, added Famularo.
Regardless of the exact nature of the stores, the consensus is that local, neighborhood businesses will make the most of the open leases.
“Like anything else that’s been happening, you’re going to see a lot more neighborhood-oriented stores, similar to Rite Aid, serving the neighborhood in the same way Rite Aid did, but with perhaps more services,” said Welles, who referenced organizations such as Bond Vet and CityMD.
Commercial Observer Article Here