By Siddharth Cavale and Granth Vanaik
(Reuters) -Walmart said on Tuesday it will close all 51 of its health clinics and shut its virtual health care operations, saying it could not see it as a sustainable business model to continue.
“Healthcare is expensive to run. We were finding that the increased labor and operating costs environment, like with reimbursement, both public and private, made it difficult (to run the business) and obvious we had to close,” Walmart (NYSE:) spokeswoman Marilee McInnis told Reuters.
The company said in a statement those challenges created an environment where it saw a “lack of profitability” that made the care business “unsustainable for us at this time.”
Companies such as Walmart, Walgreens, Amazon (NASDAQ:) and CVS have expanded into providing healthcare services during the past five years, seeing opportunities in the highly fragmented U.S. system. But it has not been clear that consumers want such services from retailers or that they are profitable.
Walgreens, for instance, is planning to close 160 of its VillageMD primary care clinics after it recorded a $5.8 billion impairment charge on its investment in VillageMD.
Amazon in February said it would cut a few hundred jobs across its healthcare units, including clinic operator One Medical which it acquired for $3.5 billion last year.
And Walmart’s sudden decision to close all its 51 health clinics and telehealth operations marks a startling about-face from its plan last year to nearly double the number of these health centers across the U.S. by 2024.
Walmart’s Senior Vice President of Healthcare Delivery, David Carmouche, highlighted the company’s unique position to provide affordable health care services in March last year.
Carmouche stated that the company’s vision was to bring a “one-stop model of healthcare” to communities, addressing the cost and convenience barriers that many Americans face. He also stated that it was in a unique position as 90% of the U.S. population is located within 10 miles of a Walmart, a statistic frequently cited by the company.
But on Tuesday, in a LinkedIn post, Carmouche wrote that “though it didn’t end where I had hoped it would…there will be a time in the future to think about and discuss the challenges specific to retail healthcare.”
Success in the clinic space requires a solid economic model, said Craig Garthwaite, professor and director of Healthcare at the Kellogg (NYSE:) School of Management.
“You can buy all the right ingredients – you still need a good recipe to cook the meal,” said Garthwaite. “This was sadly quite predictable – if a missed opportunity.”
Walmart investor Charles Sizemore said he was disappointed in Walmart’s move because he viewed health centers as a differentiator and as a way to drive foot traffic.
“Unfortunately, the economics just don’t work in this environment,” he added.
The Bentonville, Arkansas-based company started its health clinics in Georgia in 2019, providing a range of services including primary care, dental care, and telehealth.
By 2024 it had 51 clinics spread across five states including Texas and Florida. The centers are usually situated next to a Walmart Supercenter and house doctors and dentists.
Walmart spokesperson McInnis said all the stores will most likely close within the next 30 to 90 days, with all employees given the option to transfer to any Walmart or Sam’s Club store.
The company declined to disclose each health center’s sales figures or potential losses from their closures.
D.A. Davidson and Citi analysts said they expected the impact of the closures to be immaterial.
Walmart said it would instead focus on its 3,000 vision centers and nearly 4,600 pharmacies located inside its stores “whose importance has continued to grow,” as it expands the clinical capabilities of the services they provide.
Walmart’s pharmacies, for instance, offer many of the clinical services its health clinics provided including testing and treatment for respiratory illnesses like flu and strep.
Walmart shares were down 1.3% in morning trading on Tuesday.
