Walmart Health Shuts Down in Major Blow to Retailers

'Lack of profitability' is causing the company to retreat from the healthcare space.

Walmart's plans to disrupt healthcare ended abruptly this week as the company announced the shuttering of its health clinics and virtual care business, representing a significant step back for retailers.

Executives of the retail giant said that their healthcare offerings were "not a sustainable business model for us to continue" as they ran into challenges with reimbursement and profitability—problems that aren't unique to Walmart as retailers struggle to scale up.

While the company's decision to close all 51 of its health centers across five states and end its virtual care services is somewhat unexpected and a U-turn from its plans for expansion, there were signs of the retailer running into roadblocks. This past month, Walmart announced that it was delaying the opening of six health centers in Phoenix and four locations in Oklahoma City to next year.

The health centers strived to give patients a lower-cost option to primary care, dental, behavioral health, labs, x-ray, community health, and telehealth.

Retailers are finding immense headwinds in the primary care space and those challenges have only picked up in recent years, according to Arielle Trzcinski, principal analyst at market research firm Forrester.

“Primary care is often a loss leader for larger health systems but serves a critical role as a feeder of patients and customers for specialty care and procedures,” she said. “Without those higher revenue opportunities, retailers must achieve high levels of adoption and volume to unlock profitability.”

Walgreens has also found tough sledding in primary care, choosing to close 160 VillageMD clinics after investing billions. The result has been $6 billion in net loss for the company in the second quarter.

The same pain points that are weighing heavily on hospitals and other traditional providers are also affecting retailers.

“Labor costs have risen and providers have been leaving the industry in droves, resulting in a capacity calculus that restricts retailers' ability to deliver convenient, highly accessible care—their key value proposition for consumers,” Trzcinski said. “Administrative burden and costs from health insurers have also increased, with some large health systems dropping major insurers and plans in response. Consumers are being left to search for a new provider that is in-network mid-plan year. Retailers that bill insurance are not insulated from these additional issues.”

Other retailers, however, are persisting in their efforts to disrupt primary care.

Amazon purchased One Medical for $3.9 billion last year and remains committed to expanding the venture, while CVS scooped up Oak Street Health for $10.6 billion in 2023 and plans to open up 50 to 60 clinics this year.

Walmart and Walgreens’ shortcomings will serve as both a warning and lesson for other retailers in the space, showing that the strategy for scaling requires a more nuanced approach.

Walmart especially can serve as a test case for why size isn’t everything when it comes to scaling in healthcare. As the largest company by revenue in the country, Walmart has no shortage of resources to throw at the problem, but for whatever reason failed to build out its footprint and connect with potential patients.

The need for virtual care remains though and retailers wanting to fill the void have an opportunity to serve patients in rural areas.

“As medical deserts continue to expand, other retailers operating in healthcare should take action now to reassure patients of their long-term strategy to protect customer retention,” Trzcinski said.