The recent Chapter 11 bankruptcy filing by Rite Aid, one of the nation’s largest drugstore chains, has raised concerns about the potential impact on the mass-market beauty industry.
Rite Aid, with its sales of $24.1 billion across over 2,300 stores, had set itself apart from competitors by offering a diverse range of beauty brands, including indie lines not commonly found elsewhere. These efforts to diversify its beauty assortment were part of a strategy to remain competitive and relevant in the evolving retail landscape.
The efforts were not enough to stave off filing for Chapter 11. “It was always a matter of when, not if, Rite Aid would file for bankruptcy,” said Neil Saunders, managing director of GlobalData, in a note to investors. “The company has been deep in the red for the past six years, notching up combined net losses of $2.9 billion. It also has $3.3 billion of long-term debt sitting on the balance sheet, which, during the last fiscal quarter, cost it some $65 million to service. Its assets exceed its liabilities by $947 million — a figure that seems to constantly widen. Against this financial backdrop, Rite Aid simply isn’t a viable entity: it is basically running on the fumes of cash it generates in the day-to-day business.”
In 2020, Rite Aid unveiled a wellness-focused beauty department featuring indie brands, a move aimed at attracting health-conscious consumers. The inclusion of brands like Doll Face, Kokie, Essano, and Ella + Mila expanded the mass-market beauty offerings, catering to a broader range of customer preferences. Rite Aid’s stores in rural areas also remained a reliable source for traditional mass-market brands such as L’Oréal, E.l.f., CoverGirl, Wet ‘n’ Wild, Sally Hansen, and Revlon.
Despite these efforts, Rite Aid struggled financially, posting net losses of $2.9 billion over the past six years and carrying $3.3 billion in long-term debt. The company’s inability to maintain financial viability eventually led to its Chapter 11 filing. The opioid lawsuits looming over Rite Aid added further pressure, with potential settlements estimated to cost the company around $1 billion. In comparison, industry giants like Walgreens and CVS, with their substantial resources, could manage settlements of approximately $5 billion each to resolve similar lawsuits.
Rite Aid secured $3.45 billion in new financing from certain lenders to support its operations during the bankruptcy process. The chain is expected to close some of its stores, potentially up to 500 locations. While the situation poses challenges, industry experts believe there is still a need for a third major drugstore chain in a highly consolidated industry.
From a beauty perspective, consumers can turn to alternative outlets if Rite Aid stores close. Major retailers like Amazon, Ulta Beauty, Ulta at Target, and Sephora at Kohl’s offer convenience and opportunities for discovery. CVS, Walgreens, and Walmart are also expected to benefit from the shift in customer purchasing behavior.
Despite the challenges, some hope that Rite Aid will maintain a core of stores that can continue to support smaller beauty brands. Rite Aid’s loyal customer base appreciates the convenience and service the chain provides. Its beauty departments, known for their strong nail sections, have become destinations for consumers in smaller markets. These sections rival those of upscale beauty retailers, offering emerging brands an opportunity to establish their presence.
While Rite Aid’s future remains uncertain, its unique proposition and reach across rural areas are factors that could shape its path to recovery. The company’s challenge will be to maintain relevance and compete effectively in the ever-evolving retail landscape, even as it grapples with financial difficulties and the changing retail industry dynamics.