CVS Targets Target Pharmacies

In $1.9b deal, R.I. health giant will take over, rebrand 1,700 Target locations, 76 in New England

It was a $1.9 billion deal that came out of the blue Monday morning: CVS Health will take over operations of nearly 1,700 Target pharmacies, including 76 in New England.

While investors think it’s a great deal for both companies, it leaves shoppers with a lot of questions. “I love Target, and I hope that CVS can live up to their standards,’’ Meaghan Verri of Marlborough, Mass., said in an interview as she entered the Boston Post Road East store in that city.

To Verri, there’s nothing wrong with Target pharmacy that CVS needs to fix. “I find the pharmacists really friendly. Less wait time,’’ Verri said. “I would hope it would stay the same if not even improve.’’

Target operates 38 locations with pharmacies in Massachusetts, 20 in Connecticut, 9 in New Hampshire, 5 in Maine, and 4 in Rhode Island. The companies said as a rule, current Target pharmacy employees will be offered the same jobs by CVS working in their current pharmacy locations.

On a down day for stocks generally, investors bid up shares of both CVS and Target, with Target jumping $1 a share, or close to 1.3 percent. CVS, based in Woonsocket, R.I., was up about 0.3 percent in trading Monday.

“It makes a lot of sense in terms of the strategy they're following to maximize growth and profit from the stores,’’ said Matthew Morse, director of U.S. equities with Boston money managers Crestwood Advisors.

Morse sees Target strategically bailing out of a business where it's weak. “The pharmacy business is not really a core business to target. It's less than 5 percent of sales, and it's one of the lowest-margin businesses’’ within Target’s portfolio of retail lines.

CVS, meanwhile, gets to add the equivalent of close to 1,700 more stores – a more than 20 percent expansion of its retail footprint -- on the cheap. Paying to rebrand the Target pharmacies and operate them as stores-within-a-store “costs considerably less than if they were to, say, build the same number of stores, CVS stores, required to build out this much capacity.’’

CVS often gets lower ratings for customer service than Target pharmacy, and Sharon Fleming of Sudbury, Mass., was one of several customers we talked to in Marlborough who dislike having to do business with CVS. “I much prefer Rite Aid. I just feel the customer service is better, and it's a much more rapid response when you need to get a prescription.’’

But Morse predicts shoppers will come to like the CVS presence inside Target. “I think the way that this will translate for the customers is CVS will bring its scale and expertise in this area, perhaps better pricing over time’’ because of its large size and ability to negotiate cheaper wholesale prices from vendors, Morse said. 

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