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Marketplace Morning Report

Why Target is selling its pharmacies to CVS

Annie Baxter Jun 15, 2015
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First it bailed on Canada. Then it shed its furniture business. Now Target’s dumping its unprofitable pharmacies and clinics, selling them to CVS Health Corp. for $1.9 billion.

The deal will put the CVS brand on Target’s roughly 1,700 pharmacies and 80 clinics.

“Only about 5 to 7 percent of Target’s customers actually utilize the pharmacy business, and so Target was basically operating that business near break-even,” says Ken Perkins, an analyst with Morningstar.

The problem may have been a brand disconnect.

“A lot of consumers are reluctant to use a pharmacy at a mass merchant,” says Adam Fein, president of Pembroke Consulting, a pharmaceutical management consultancy. “They don’t think of the place where they get their DVDs, their TVs and their bed sheets as the place where they can also get their prescriptions.” 

But Fein expects that will change with pharmacy industry giant CVS taking over Target’s pharmacies and clinics. Fein says CVS will connect Target customers to more generic drugs and a program for managing prescriptions, and give them access to high-priced specialty drugs, like one for treating Hepatitis C.

“CVS is the largest dispenser of these specialty drugs and has a number of programs and services that Target just can’t offer,” he says. “Target just doesn’t have the scale and capabilities to play in this new world.”

Fein says if customers can get those drugs and services at a CVS within Target, they might stick around and stock up on other stuff.

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