Lessons from the CVS and Target Deal

We learned yesterday that CVS and Target have agreed to team up in the pharmacy/clinic business.   CVS will pay $1.9 billion to Target for the Minneapolis-based retailer's pharmacy business.  As a result, CVS will now operate the pharmacies and clinics in 1,600 Target stores across the United States.  

This development has important lessons and implications for other companies, particularly in the retail sector.  First, it shows how a firm should examine its various lines of business and determine where to focus its efforts.  Target came to the conclusion that it simply could not compete effectively in the pharmacy/clinic business as an independent player.   It did not have the scale and expertise to be successful.  Second, the deal shows that companies can work together and achieve synergies without having to merge with one another.   Alternative forms of cooperation can lead to economic benefits for both parties.   CVS gets access to new markets and new customers.   Target gains foot traffic in its stores, and it collects lease payments for the pharmacy/clinic locations.  Third, the store-within-a-store concept may provide a blueprint for other brick-and-mortar retailers as they continue to try to compete with online rivals such as Amazon.  By partnering with specialists, the mass merchandisers and department stores may be able to offer an enhanced in-store experience and increase foot traffic.  Finally, the deal shows that maximizing revenue is not a strategy.  Target has now made several moves that have trimmed revenue, but in all likelihood, have positioned it more effectively in the marketplace and improved profitability.  The Canadian exit and the CVS partnership were both such bold moves, and perhaps there may be more to come.