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Target To Sell 1,600 In-Store Pharmacies To Drug Chain CVS

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Target To Sell 1,600 In-Store Pharmacies To Drug Chain CVS

Business

Target To Sell 1,600 In-Store Pharmacies To Drug Chain CVS

Target To Sell 1,600 In-Store Pharmacies To Drug Chain CVS

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Retail giant Target said Monday that it's offloading its pharmacy and clinic business to CVS. The nearly $2 billion acquisition still needs to be approved by the Federal Trade Commission.

STEVE INSKEEP, HOST:

Target is moving past its data breach and transforming its business. Target operates more than 1,600 pharmacies inside its stores, and now it is selling those pharmacies. The drugstore chain CVS will take over the pharmacies in Target stores and rebrand them. From member station WSHU, Charles Lane reports.

CHARLES LANE, BYLINE: The pharmaceutical industry has been splitting in two directions - cheaper generic drugs and expensive specialty drugs. Target wasn't really good at selling either of those things. To sell cheap generic drugs, you need to buy a lot of them, and Target was a pretty small player in the pharmacy business. To sell specialty drugs, you need experts on hand - again, not Target - but now comes CVS. Brian Cornell is Target's CEO.

BRIAN CORNELL: With a very unique partner that brings expertise into a space where we lack the scale and specialization. It's also going to allow us to make sure we're elevating our focus on reinventing food.

LANE: Cornell says only 5 to 7 percent of Target shoppers who walked in the door went to the pharmacies. So instead of trying to compete, Target will rent space to CVS and focus on where shoppers do go - groceries, clothes, beauty and home goods. Analysts call the deal a masterstroke because it allows both stores to grow. Cornell happily agrees and says Target shoppers are the real winners.

CORNELL: They're going to view this as a very positive change, and we expect it to drive traffic and improve script counts.

LANE: For CVS, they get even bigger with 9,000 stores and clinics. Adam Fein is pharmaceutical consultant who runs Pembroke Consulting. He says size is now everything in the drug business.

ADAM FEIN: Generic drugs now are almost 9 out of 10 prescriptions that you or I might get at the drugstore. And being a big buyer is crucially important to playing in that game.

LANE: Bringing in another company to run part of the store is on the surface unusual, but it's not unheard of. Target leases space to Starbucks and other restaurants. The deal also follows merger trends in the pharmacy business. Walgreens bought the U.K. pharmacy Boots last year. And earlier this year, CVS bought the drug wholesaler Omnicare. But what does all of this mean for customers?

FEIN: CVS has emerged as the single-largest buyer of generic drugs in the country. This gives them additional scale to buy generics even more cheaply than they have been.

LANE: But not everyone thinks those savings will be passed on to customers. Joseph Agnese covers CVS for Standard & Poor's. He says CVS will certainly be able to reduce purchasing costs with the Target deal, but that money could end up going to investors, not to consumers. The acquisition still needs the approval of the Federal Trade Commission. For NPR News, I'm Charles Lane in New York.

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