Target Corporation (TGT) And CVS Health Corp (CVS) Agreement Makes Lot Of Sense

Target Corporation (NYSE:TGT)’s recent agreement to sell its pharmacy business CVS Health Corp (NYSE:CVS) for $1.9 billion will make a lot of sense for both the companies. It will also put an end to a number of challenges that both brands had to encounter with in the past. However, both companies should be prepared to take some precautionary measures to realize the benefits and not get impacted by the side effects of the deal.

Transitioning Phase

As far as CVS Health Corp (NYSE:CVS) is concerned, its priority would be to change the brand from Target Corporation (NYSE:TGT). That will undoubtedly attract a number of customers, as well as, the traffic footprint to CVS. For Target, the pharmacy business was viewed as a distraction since it is a highly regulated business.

There was not much revenue generation from the pharmacy unit for the retailer since its contribution was less than 5% of its total revenue of close to $73 billion. On the other hand, CVS generates nearly 71% of its total revenue of $140 billion from the prescription drugs. However, this does not mean that it will have a free run to generate sustained revenue generation. There are three factors that assume significance.

Location And Relations

One of the primary factors that Forbes pointed out is the location and the relations. CVS Health Corp (NYSE:CVS) needs to find out whether Target Corporation (NYSE:TGT)’s 1,600 location will be complimentary to its network. There is also no doubt that CVS will enter into new markets, especially in the Northwest. However, location opportunities widen the physical geography. The brand value also plays a key part in engaging with the customer base in a location through basic needs or values or culture. For quite some years, the retailers have achieved optimization of in-store network.

The second is the customer quality. Retailers have depended on a number of standard set of performance metrics. That included traffic patterns, same-store sales, basket size, sales per square foot, and so on. The retailers required understanding of the pulse of the individual performances so that they will be in a position to take a decision on the nature of the partnership change in their stores.

Enhance Brand Offerings

As far as the Target and CVS are concerned, the alliance should improve the brand offerings to attract new type of customer and also enrich the offerings to customers. The third factor is the additive merchandising. The report said that every retailer is selling more products crossing the other retailer’s classes. That is eating into the other’s share.

The deal between Target Corporation (NYSE:TGT)’s and CVS Health Corp (NYSE:CVS) should pave way for more alliance and roll-ups among the retailers in the United States. However, the success of such partnerships will depend on how the data helps the deal.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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