Some Things to Know and Ask in the Aftermath of the CVS/Target Deal

By Clive Riddle, June 19, 2015

Here’s some things to know in the aftermath of the announced CVS/Target deal . We can start with this list of deal points that the two companies provided in their press release announcing the acquisition and strategic partnership:

• CVS Health will acquire Target’s pharmacy and clinic businesses for approximately $1.9 billion.
• CVS Health will acquire Target’s more than 1,660 pharmacies across 47 states and operate them through a store-within-a-store format, branded as CVS/pharmacy.
• A CVS/pharmacy will be included in all new Target stores that offer pharmacy services
• Target’s nearly 80 clinic locations will be rebranded as MinuteClinic,
• CVS Health will open up to 20 new clinics in Target stores within three years of the close of the transaction. The new clinics will be part of CVS/minuteclinic’s plan to operate 1,500 clinics by 2017
• CVS Health and Target plan to develop five to 10 small, flexible format stores over a two-year period following the deal close, which will each be branded as TargetExpress and include a CVS/pharmacy

Two new videos posted in HealthShareTV help explain the deal in simpler terms:  CVS, Target Merger Might Boost Health Of Both Companies and CVS Health Taking Over Target's Pharmacy, Clinics for $1.9 Bn.

Two new healthsprocket each list five reasons behind the motivations for the deal:  Fortune Magazine: Five reasons Target's deal with CVS Health makes it leaner and meaner and USA Today: 5 reasons why Target sold pharmacy biz to CVS. The two lists differ some – but what they have in common mentions foot traffic and that Target wasn’t in a position to excel at pharmacy.

One way of framing the deal from Target’s perspective, is that it’s just a part of their larger picture to streamline and focus. For example, in April they announced finalization of closure of all Canadian Stores. The big picture was their $2 billion restructuring plan announced in February which has included rounds of corporate layoffs from March through this week, with the Minneapolis / St. Paul Business Journal reporting that the “Minneapolis-based retailer, Minnesota's fifth-largest employer, has now cut 2,360 jobs in the U.S., 17,600 in Canada and 350 in India this year.”

A key statistic to note, is that sources cite only 5% to 7% of Target customers use the store’s pharmacy services. Thus -the difference for the two companies is that Target customers come to purchase consumer goods, and some incrementally purchase prescription and health items as long as they’re going to be at Target; while CVS customers come to purchase prescription and health items, and some incrementally purchase consumer goods as long as they’re going to be at CVS.

Does this signal a trend for chain supermarkets, or other big box retailers such as Costco, that offer pharmacy services? If more retailers do shed or partner their pharmacy services , what are the implications for the retail clinic industry?