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Philadelphia-based Rite Aid has filed for bankruptcy. What happens now?

The company moved to Philadelphia last year, relocating its headquarters from the Harrisburg area to the Navy Yard.

A Rite Aid at 7401 Ogontz Avenue in Philadelphia.
A Rite Aid at 7401 Ogontz Avenue in Philadelphia.Read moreJESSICA GRIFFIN / Staff Photographer

Weeks after Rite Aid first proposed a bankruptcy plan that involved closing hundreds of stores, the Philadelphia-based pharmacy chain on Sunday filed for Chapter 11 bankruptcy protection.

The news doesn’t come as a surprise to many.

Rite Aid, as well as some of its rivals — like CVS and Walgreens — have faced some of the same issues in recent years, including customers preferring shopping at Amazon and big box retailers over pharmacy chains.

On top of those challenges, Rite Aid is facing more than 1,000 lawsuits alleging that it filled illegal prescriptions for medications, including opioids.

“It was always a matter of when, not if, Rite Aid would file for bankruptcy,” GlobalData managing director Neil Saunders said in a note to investors, according to CNN. “The company has been deep in the red for the past six years.”

Rite Aid is the latest large chain to file for bankruptcy in recent years, including David’s Bridal and Bed Bath and Beyond, which prompted layoffs and store closures.

At a bankruptcy hearing Monday, attorney Joshua Sussberg gave an overview of the issues facing the company and said the Rite Aid brand is not going away any time soon.

“We are open for business and it will be business as usual,” Sussberg said.

Here’s what else you need to know.

How old is Rite Aid?

Rite Aid was first founded in 1962 in Scranton. It was originally called Thrift D Discount Center.

The company moved its headquarters to Philadelphia last year, relocating from Harrisburg suburb Camp Hill to the Navy Yard.

“Our remote-first corporate workforce will continue to leverage our Navy Yard Headquarters for in-person collaboration,” Rite Aid spokesperson Alicja Wojczyk said Monday.

The chain operates more than 2,100 retail pharmacy stores across 17 states.

Why is Rite Aid being sued?

Rite Aid faces a mix of federal and state-level lawsuits for allegedly filling unlawful prescriptions for controlled substances — including opioids — amid an ongoing national opioid crisis.

In March, the Department of Justice filed a lawsuit against the company, saying Rite Aid knowingly processed “unlawful prescriptions for controlled substances” and missed “obvious red flags” when filling the prescriptions.

At the time, Attorney General Merrick Garland said the department would use “every tool at our disposal” to hold Rite Aid accountable for “contributing to the opioid epidemic.”

Other pharmacy chains, including Walgreens and CVS, have settled similar lawsuits for billions of dollars and remain in better financial shape than Rite Aid.

What does the bankruptcy filing mean?

The company’s Chapter 11 filing says it expects a significant increase in losses from last quarter. Rite Aid has lost nearly $3 billion since 2017.

In its June financial report, Rite Aid reported having $135.5 million in cash on hand vs. $3.3 billion in long-term debt. The company’s filing in U.S. Bankruptcy Court in New Jersey listed $8.6 billion in total debts and $7.6 billion in assets.

Rite Aid said Sunday in a statement that it has secured $3.45 billion in financing and debt-reduction agreements from lenders, which will help keep the company afloat through bankruptcy. Shares of Rite Aid on the New York Stock exchange stand at about 65 cents, down from $4.20 a year ago.

The pharmacy chain also announced that it was appointing a new CEO, Jeff Stein, who will lead the company’s restructuring plan. Stein said the company will stay in business but will accelerate the pace of closing some stores and selling off parts of its business, including its prescription benefit provider Elixir Solutions.

How will this impact existing Rite Aid locations?

Rite Aid store closures aren’t new. In Philadelphia, they’ve been a regular occurrence for over a year, and six stores in the region have closed in the last month, according to United Food and Commercial Workers Local 1776, which represents Rite Aid store employees in the Philadelphia area.

Wojczyk said the company will continue to assess its company footprint and close underperforming stores “to further reduce rent expense and strengthen overall financial performance.” Exact numbers have not been provided.

The company closed about 190 stores during its last fiscal year, which ended in March. The legal team representing Rite Aid said the pharmacy company is paying about $80 million in dead rent annually for roughly 200 broken leases.

What if I have a prescription at Rite Aid?

No changes are being made to customers’ Rite Aid prescriptions unless a store is closing.

In a statement, the company said it will “make every effort” to ensure that customers know whether their store is closing ahead of time and will get their prescriptions filled at another Rite Aid or other nearby pharmacies.

The chain also said it will work to transfer prescriptions when necessary to avoid disruption of services.

According to the company’s plan, it would prioritize moving existing scripts to the closest remaining Rite Aid locations when possible and sell them to third-party pharmacies as the less-preferred option.

Will employees lose their jobs?

It depends on how many stores close. Rite Aid said it will help employees in closing stores transition to other locations when possible.

How are unionized Rite Aid employees impacted?

United Food and Commercial Workers Local 1776 represents Rite Aid store employees in the Philadelphia area and has about 1,500 Rite Aid members, according to local president Wendell Young IV.

Young said Rite Aid sent a letter to all the unions across the country that represent its employees, saying that the company intends to honor contracts and that employees will continue to be paid.

“It is what it is,” Young said.

Local 1776 just last week approved a new, three-year contract.

The new agreement includes slight wage increases and increased paid time off, while maintaining benefits at the same level as the last contract, Young said. Negotiating a contract with the knowledge that bankruptcy was likely on the horizon meant making compromises, he noted.

“While it fell short of what our members deserved and wanted, there was some level of security in that they had a contract in place before filing for bankruptcy,” Young said. “If not for the bankruptcy, the terms would be better.”

Young said union leaders had “a tough conversation” with membership before choosing to abbreviate bargaining.

“We took the bird in hand rather than continuing to bargain for the two in the bush,” Young said. “If we used maximum leverage, that could easily be undone by a bankruptcy court.”

What are consumers saying?

During a bankruptcy hearing Monday, Rite Aid attorney Sussberg spoke to the nostalgia that comes with a hometown pharmacy. Sussberg said he remembered accompanying his mom to their local Rite Aid for Band-Aids and Hubba Bubba gum.

“There should be robust interest in this business,” Sussberg said, citing national health expenditures and an aging population.

But for locals who have seen their nearest Rite Aids suffer short-staffing and closures, the pharmacy’s bankruptcy filing isn’t a surprise.

About two years ago, after CVS was unable to fill a time-sensitive prescription, Jillian Cerner became a loyal customer of her Fairmount Rite Aid, one of the locations that has since closed.

”I found the pharmacists and employees were so wonderful and kind,” she said. “But as time went on, I felt the quality of service did go down.”

Prescriptions weren’t ready when they were supposed to be. She’d arrive for a COVID-19 or flu shot appointment, she said, only to find the pharmacy running an hour behind schedule. Once she went to pick up a prescription during normal business hours and the store was temporarily closed because of short-staffing.

Frustrated by the repeated inconveniences, Cerner started going to Fairmount Pharmacy about a year ago.

The walk is a couple of extra blocks, she said, and she’s had to adjust to the independent pharmacy’s hours. It isn’t open as late as chain stores or open on Sundays.

But the staff has gotten to know her, she said, and last week had a great experience getting her COVID booster.

”Living in a city, I always felt the big name-brand places would have given me the best service. … That really turned out not to be case,” Cerner said.

“What I’ve learned from the switch is that sometimes the less convenient aspects of a smaller pharmacy — like not being open as frequently — they don’t matter as much because the people are really good.”

Staff writer Erin McCarthy contributed to this article.