CVS stores make relatively little money. Here’s why.

The company has seen revenues rise significantly over the years. But inflation, theft, and discounting combined with fewer federal dollars for drugs have eaten into profits.

A CVS store in downtown Los Angeles on Oct. 17.PHILIP CHEUNG/NYT

CVS Health Corporation may be the largest pharmacy chain in the United States, with more than 9,000 pharmacies across the country. But the company generates relatively small profits, even though revenues from its pharmacy retail segment have grown significantly over the past three years.

As a result, CVS and other pharmacies have been trying to control costs. They have not significantly added more employees, even as demand for pharmacists has soared. But pharmacists are increasingly upset about staff shortages and burnout.

Consider these numbers:

• Last year, the overall retail pharmacy business generated $106.6 billion in sales, a 17 percent jump over 2020.
• During this period, pharmacy sales, which includes prescriptions, rose 16.8 percent to $82 billion.
• General merchandise sales, known as “Front Door” revenue, increased 15.9 percent to $22.8 billion.

But the segment’s profits actually fell 33 percent to $3.8 billion.

Why?

CVS’ retail business, which sells everything from toys and electronics to frozen foods and office supplies, competes with the likes of Walmart, Target, and supermarket chains. To grab market share, all of these retailers offer discounts and promotions, which drives down prices and thus their profits.

At the same time, inflation has driven up employee wages and benefits. And pharmacies like CVS and Walgreens lose a lot of money from people stealing products off their shelves.

As for the pharmacy business, CVS is filling record amounts of prescriptions. But the company and analysts say that pharmacies have seen federal reimbursement dollars sharply decline in recent years. And entities known as pharmacy benefit managers (PBM) have used their sizable clout to negotiate lower drug prices with pharmacies.

Given these factors, CVS has been closing pharmacies and cutting store hours. The company wants to transform itself into more of a pure health care business.

However, retail pharmacy still makes up about a third of CVS’ overall business. So the company is likely to face some pain as it tries to move away from retail pharmacy.