The drugstore chain once boasted of having more outlets in the country than its rivals, having operated 4,000 drugstores coast to coast in 1999. But 25 years on, Rite Aid is now mired in debt and scrambling to find a way forward.
The chain's latest bankruptcy court filings have revealed that it completely cut all ties with the two Midwestern states. Prior to its Chapter 11 bankruptcy filing last October, it had more than 2,000 stores. From an initial 154 closures, this number has increased to 856.
The latest closures in August, numbering 74 in total, were all in Ohio and Michigan, save for two – one in California and another in Washington. Last month, there were 169 closures recorded, with all of them both located in the Buckeye State and the Great Lakes State.
Less than a year ago, the two states had the fourth- and fifth-highest number of Rite Aid locations in the United States. Now all 234 stores in Michigan and 183 in Ohio have been shuttered, or will be soon.
Experts think Rite Aid is moving out of areas where it cannot compete with much bigger chains like CVS and Walgreens. Instead, it is focusing where it can aim to be number two behind one or the other, such as in Pennsylvania. It's unclear when Rite Aid will emerge from bankruptcy, but it plans to return with about 1,300 stores total, a far cry from when it operated 5,059 locations in 2008. (Related: Rite Aid to CLOSE 27 more stores due to ongoing bankruptcy proceedings.)
Rite Aid's rapid expansion comes back to bite it
A spectacular fall followed Rite Aid's rapid ascent, according to the Toledo Blade. In November 1999, its then-CEO Martin Grass stepped down under the pressure of a widening accounting scandal. The company was forced to announce that it would restate three years of earnings reports, cutting over $500 million from its reported profits. Florida had sued it for price fixing while Washington took Rite Aid to selling expired baby formula.
Grass was convicted of defrauding the company, its stockholders, creditors and vendors in May 2004 and was sentenced to eight years in prison. Rite Aid's stock slumped to under $1 a share, which triggered a threat by the New York Stock Exchange to delist it.
The company has tried at various times to merge with or be acquired by rivals Walgreens or Albertsons. But in each case, the proposed merger fell through mainly due to the weakness of Rite Aid's balance sheet. According to the Blade, Rite Aid never really recovered from the crushing debt it took on to fund its expansion and the criminal mismanagement that wiped half a billion dollars off its profit and loss statement.
Carty Finkbeiner, former mayor of Toledo in Ohio, said Rite Aid's rapid expansion came back to bite it. "Rite Aid is just an irresponsible corporate citizen; they have given up on mid-street locations and absolutely, like piranhas, are going after corner locations," said the four-time Toledo mayor. "Rite Aid got greedy and now the chickens have come home to roost. I feel bad for the people in those neighborhoods Rite Aid came into."
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