The news that Target Corp. is selling its in-store pharmacies and clinics to drug store chain CVS Health is another step in the Minneapolis-based retail giant's cost-saving moves under CEO Brian Cornell.
The deal announced Monday means CVS Health will acquire, rebrand and operate Target’s 1,600 pharmacies and clinics for $1.9 billion. Target’s proceeds from the sale, after tax, are expected to be about $1.2 billion.
Why the deal is good for Target
First and foremost, money: In addition to the cash infusion, Target gets rid of a money-losing segment of its operation. John Mulligan, Target's chief financial officer, said Monday the $4.2 billion pharmacy business was in the red last year, according to the Minneapolis/St. Paul Business Journal.
Foot traffic: Target executives said Monday they believe they'll see more "foot traffic" from CVS customers who come into their stores to fill prescriptions at CVS, then also shop for other items like groceries, clothing or electronics, the Business Journal reports.
Complexity: Health care is a complex business and will continue to change under the Affordable Care Act. Target lacks the expertise to operate the pharmacy business efficiently, according to USA Today.
Focus: The pharmacy business isn't Target's main focus right now. It has higher priorities, including competing for more grocery business, and keeping up with its main competitors Amazon and Walmart, USA Today notes.
Target also had a hard time competing in the pharmacy space because it doesn't have nearly as many store locations as most pharmacy chains. There are nearly 1,800 Target stores in the U.S. vs. 7,800 CVS locations, according to USA Today.
In addition, Target stores can't usually provide customers quick enough access to their medications because most are not open 24/7.
It's not yet clear how the deal will affect Target's workforce.
CVS said it would offer comparable jobs to Target's 14,000 in-store health care professionals, according to the news release.
Target said it will "further evaluate the business impact and related support needs at its headquarters locations" as it relates to the deal, which leaves the door open for further job cuts at the corporate level.
The deal needs approval from federal regulators, and is expected to close by the end of the year.