Their corporate logos share colors, their aisles share similar products — and now they’ll share floor space.
Despite the similarities between their businesses, CVS Health (CVS) CEO Larry Merlo and Target (TGT) CEO Brian Cornell say they are confident that their companies will maintain distinct identities as the first CVS Pharmacy stores located inside Target celebrate a grand opening Wednesday in the Charlotte area.
CVS agreed last June to pay $1.9 billion to acquire the Target Pharmacy business. The deal was completed in December.
Target’s 1,672 pharmacies in 47 states will be rebranded as CVS Pharmacy within six to eight months as CVS-funded renovations are gradually completed. Pharmacies will remain open during the upgrades. CVS — the largest U.S. drug store chain, now with about 9,500 locations — is paying $20 million to $25 million in annual rent for the space. In a joint interview, Merlo and Cornell told USA TODAY that although their respective red-and-white logos compete for some customers, the pharmacy deal makes sense for both sides.
“As far as the pharmacy experience goes we are partners,” Merlo said. “Brian and I are very comfortable that we have complementary strengths, brands and, very importantly, cultures.”
For retailers, the store-within-a-store concept is enticing because it can generate extra foot traffic for the lessee — Target, in this case — and extra revenue for the lessor. But there are also risks when competitors tie the knot. Loyal customers may defect or one or both brand identities can get muddied.
Target wanted to stop running pharmacies because of the increasing complexity of the prescription drug business, higher regulatory hurdles and profitability challenges. And CVS, which got more than 71 % of its retail pharmacy revenue in 2014 from the prescription drug counter, is not particularly concerned about losing sales of candy, makeup and greeting cards to Target.
Cornell said Target customers will benefit from access to CVS drugs and clinical services while “at the same time it allows us to free up our resources” to focus on “signature categories” such as groceries, baby items and home goods.
“It’s probably best for them to just outsource it,” Forrester Research retail analyst Sucharita Mulpuru said in an interview. “If you can get that foot traffic into the store then you can get additional add-on purchases.”
Patient records and prescriptions were transitioned from Target to CVS, and most insurance plans transferred seamlessly, the companies said. Target Pharmacy’s loyalty program was discontinued, and the companies are encouraging patients to use CVS’ ExtraCare loyalty program.
Target’s 79 in-store clinics, where nurse practitioners offer rapid treatment of basic illnesses, will also be rebranded under the CVS Minute Clinic moniker.
Robin Lewis, CEO of retail publication The Robin Report, said similar partnerships — such as Sephora stores inside J.C. Penney department stores — have proved fruitful. Retailers are increasingly likely to consider the store-within-a-store concept as Internet sales grow and companies look to find new uses for existing floor space, he said. But the brands should serve a similar audience. “You’re not going to find Armani putting his brand into Walmart,” Lewis said in an interview. “The brands have to be somewhat compatible.”