Tar­get selling phar­macy, clinic busi­nesses to CVS Health

The China Post - - WORLD BUSINESS - BY TOM MUR­PHY

Tar­get will sell its phar­macy and clinic busi­nesses to CVS Health in the latest twist be­hind a push from big re­tail­ers to be­come all things to all cus­tomers.

The na­tion’s sec­ond-largest drug­store chain will pay about US$1.9 bil­lion to run Tar­get’s in-store health oper­a­tions and ex­pand what they of­fer for cus­tomers who have come to ex­pect that they will be able to fill a pre­scrip­tion when they shop at Tar­get.

Drug­stores, gro­cers and big re­tail­ers like Tar­get and Wal-Mart all have been push­ing into each other’s turf for sev­eral years now, blur­ring tra­di­tional re­tail bound­aries, as they try to at­tract cus­tomers who want to make fewer stops when they go shop­ping.

The num­ber of stores the av­er­age con­sumer vis­its over a month has dropped 15 per­cent over the last five years, ac­cord­ing to mar­ket re­searcher NPD Group.

“In other words, they’re not run­ning from place to place to place like they used to,” said Mar­shal Co­hen, NPD’s chief re­tail in­dus­try an­a­lyst. “It doesn’t mean I am shop­ping less, it just means I am go­ing to less stores.”

In re­sponse, re­tail­ers have been adding clin­ics and phar­ma­cies. Drug­stores, in turn, have started stock­ing gro­ceries.

All these busi­nesses are chas­ing health care dol­lars as they watch Baby Boomers grow older and start us­ing the health care sys­tem more and as the num­ber of in­sured peo­ple climbs due to the health care over­haul.

Tar­get Chair­man and CEO Brian Cor­nell said CVS Health will bring more ex­per­tise and scale to its phar­ma­cies and clin­ics than the re­tailer could of­fer on its own. He said re­search shows that their cus­tomers “ab­so­lutely ex­pect” to have phar­macy ser­vices avail­able at Tar­get lo­ca­tions. “They want to see the con­ve­nience of that in­side our stores,” Cor­nell said.

Tar­get cus­tomers will be able to use CVS Health pro­grams that pro­vide spe­cialty drugs, a fast-grow­ing slice of the phar­ma­ceu­ti­cal mar­ket, or help those with chronic con­di­tions stay on their med­i­ca­tions.

CVS Health cus­tomers who get pre­scrip­tions through the com­pany’s Care­mark phar­macy ben­e­fits man­age­ment busi­ness also will be able to grab re­fills at Tar­get stores.

“I think this is cre­at­ing an op­por- tu­nity to de­fine con­ve­nience in a way the cus­tomer wants to de­fine it,” CVS CEO Larry Merlo said.

Tar­get has nearly 1,800 stores and also sells prod­ucts through its Tar­get.com web­site. The re­tailer, which caters to cus­tomers who have a lit­tle more money than Wal-Mart shop­pers, is try­ing to rein­vent it­self as a more nim­ble and in­no­va­tive com­pany un­der Cor­nell.

Cor­nell said that the CVS Health deal strength­ens its health care busi­ness while al­low­ing the re­tailer to fo­cus more on other ar­eas like im­prov­ing its food of­fer­ings.

The deal an­nounced Mon­day in­cludes more than 1,660 phar­ma­cies in Tar­get stores that will be branded as CVS/phar­macy. The agree­ment also calls for new Tar­get stores to in­clude a CVS/phar­macy if they are go­ing to of­fer phar­macy ser­vices.

Tar­get Corp.’s nearly 80 clinic lo­ca­tions will be re­branded un­der the CVS Health Min­ute­Clinic la­bel. CVS Health also will open up to 20 new clin­ics in Tar­get stores within three years of the deal’s clos­ing.

That will help the drug­store chain reach its goal of ex­pand­ing from run­ning nearly 1,000 of the walk-in clin­ics to 1,500 by 2017

In ad­di­tion, Woonsocket, Rhode Is­land-based CVS Health and Min­neapo­lis-based Tar­get plan to de­velop five to 10 smaller stores over two years. The stores will be branded as Tar­getEx­press and in­clude a CVS/ phar­macy.

Tar­get ex­pects af­ter-tax pro­ceeds from the deal of about US$1.2 bil­lion. It also will re­ceive about US$20 mil­lion to US$25 mil­lion in rent pay­ments an­nu­ally from CVS.

CVS Health runs about 7,800 drug­stores and gained na­tional at­ten­tion last year when it an­nounced that it would pull to­bacco from its store shelves to help im­prove its rep­u­ta­tion as a health care provider. The drug­store chain also changed its name to CVS Health from CVS Care­mark last year.

CVS Health ex­ec­u­tives said the deal will help it ex­pand its re­tail phar­macy reach at about one-fifth the cost of build­ing new drug­stores. It also ex­poses CVS clin­ics and phar­ma­cies to a dif­fer­ent type of con­ve­nience shop­per who is seek­ing to buy more than he or she would at a drug­store.

Shares of CVS Health Corp. climbed 52 cents to US$102.74 Mon­day af­ter­noon, while broader in­dexes slipped. Tar­get rose 94 cents to US$80.41.

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