According to the Wall Street Journal, Target Corporation has entered into an agreement with CVS Health Corp to sell its pharmacy business for $1.9 billion. Under the deal, all of Target’s 1,700 in-store pharmacies will be rebranded and feature a “store within a store” concept that Target hopes will continue to help drive in customers, while the big box retailer can focus on products and services with higher margins. In addition to pharmacy rebranding, CVS Health also acquired Target’s 80 health clinics under the deal.
CVS Health and Target partnership could be very beneficial for both companies
Target Corp and CVS Health’s new partnership is based on a simple principle: CVS Health wants to expand its role as a drug distributor after their recent acquisition of Omnicare Inc. and Target wants to focus on driving traffic to its stores and focus on higher margin products. Prior to today, Target’s pharmacy business has been lackluster with the company struggling with getting new prescriptions. However, under the deal with CVS Health, Target is able to draw in customers through advertising of its strategic partnership and acknowledging that CVS Health has control over the pharmacy and health clinics. However, for Target, that is not such a bad life. The company was struggling to counter Wal-Mart’s expanding health services business and foot traffic. Now, management has cited satisfaction in the ability to redirect focus to other areas of the business.
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Partnership looks to expand their “store in store” concept to new smaller TargetExpress stores
Target and CVS Health have already begun discussing how they can continue to expand their partnership. Shopping trends amongst consumers over the recent past suggests that consumers prefer smaller, quick stores rather than the big box store. Target plans to adapt to this change by expanding its smaller store, TargetExpress. While it is not officially confirmed, both CVS Health and Target have apparently expressed some interest in a similar format at the TargetExpress stores, as there is at the regular Target with CVS Health running the pharmacy and Target running everything else.
Overall, I think this is a smart deal that benefits both sides. On one hand, Target gets the benefits of a pharmacy and its ability to drive in more customers, without the worry of operating the service. CVS Health, on the other hand, is happy to expand its drug distribution business and services to even more locations and markets.