What’s the Diagnosis for the CVS and Target Pharmacy Deal?

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Image courtesy of Flickr user Mike Mozart

Image courtesy of Flickr user Mike Mozart

The rise of retail clinics offering access to basic medical services across the U.S. is a symptom of today’s ‘always on’ lifestyle.

Their business model caters directly to today’s time and money conscious consumer, providing affordable, accessible and convenient health care for minor ailments and injuries.

With a 10% rise in the number of retail clinics  in the past year, it’s a booming business segment – and so it was only a matter of time before a partnership emerged between a retailer and a healthcare services company.

This week it emerged that CVS Health will snap up Target’s pharmacy and clinic businesses across the U.S. for around $1.9 billion. The deal includes a 1,660 chain of Target pharmacies that will now operate as a CVS store-within-a-store format.

All in, it will increase CVS’s existing 7,800 retail pharmacy portfolio by 20%, and also add 80 pharmacy services locations, which will now operate as MinuteClinics.

These new additions have the potential to significantly extend CVS’ reach in the marketplace. According to a recent report by Brandeis University, CVS MinuteClinics served more than 20 million patients last year.

JLL’s Director of Retail Leasing, Holly Rome says the deal will directly benefit existing and new customers, by improving their shopping and patient care experiences. “Target is not in the business of proving healthcare services – it primarily caters to consumers’ everyday needs for goods, rather than services. This acquisition allows Target to focus on its core business but keep an essential portion of its customer offerings intact. With CVS operating the pharmacies and clinics, each company gets to capitalize on their strengths which ultimately benefits the consumer.”

While the newly formed CVS locations bring customers convenience, the acquisition also is likely to benefit the real estate footprint of both companies through cost efficiencies. If successful, this real estate play may give both an opportunity to reduce capital spend.

“While these sites typically only occupy up to 300 square-feet of space, they are a huge value-add for Target from an operational standpoint” says JLL’s Andee Robb, who specializes in optimizing retailers’ store portfolios. “Store-within-a-store partnerships are often wildly successful when the customer bases are synergistic. CVS can still provide small shop neighborhood convenience in their stand-alone stores, but also capture the “all-in-one” Target shopper.  It’s a win-win.”

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