First group of Target pharmacies switch to CVS banner

In December, the workers in Target's pharmacies shed their red and khaki uniforms and donned business casual instead. In the past two weeks, employees in some began wearing CVS lab coats and blue scrubs.

The sartorial change signals the final step in Target Corp.'s $1.9 billion sale of its in-store pharmacies to CVS Health Corp.

After months of planning, Target pharmacies in the Charlotte, N.C., area have officially been converted to the CVS banner. In coming months, the rest of Target's 1,672 pharmacies and 79 health clinics will too.

"Now that we've got the pilot stores under our belt, you'll begin to see the pace with which we'll do these conversions ramp up very quickly," Larry Merlo, chief executive of CVS, said in a joint phone interview with Target chief Brian Cornell. "We expect to be done sometime this summer."

The walls of the rebranded pharmacies are getting a blue paint job. And big CVS signs are going up both inside and outside Target stores.

When the sale closed in mid-December, Target customers' prescriptions and patient records were immediately transferred over to CVS. And its 14,000 or so pharmacy employees became CVS employees at that time, too.

"If you talk to our team members who have been involved in this process, they have nothing but very positive feedback about the way it's been managed," said Cornell. "The evidence is the number of pharmacists and technicians that have now signed up and converted over to the CVS team. The take rate right now is running about 95 percent."

Some employees at Target's Minneapolis headquarters who worked on the pharmacy business have found other jobs within the company or elsewhere. But some did not. Last month, about 40 people at headquarters were notified that their jobs were being eliminated. A Target spokeswoman said more reductions could come later once the transition is completed.

For CVS, the Target deal will increase its number of pharmacies by about 20 percent. In the process, CVS gets to enter new markets, such as Seattle, Denver, and Portland, Ore., without the expense of building new stores.

A team of trainers, pharmacists, technicians and construction folks will work their way across the country to do overnight conversions of Target pharmacies into CVS. Target's pharmacies in Minnesota will receive the makeover in April, May and June.

"If you were a Target guest in the store on a Monday night, and you came back on Tuesday morning, you would see something completely different," Merlo said. "It's a testament to our respective teams working in a very collaborative fashion."

He added that pharmacy customers should not see any disruption in services during the transition.

For Target, the deal gets it out of a business where it was losing money. But it will still reap the benefit of having in-store pharmacies that help drive traffic to its stores and offer customers the convenience of one-stop shopping. Target has said it will use the $1.2 billion in after-tax net proceeds from the deal for some of its other strategic priorities, such as share repurchase.

Target's pharmacy business accounted for about $4.2 billion in annual revenue, about 6 percent of its overall sales.

Currently, only about 5 percent to 7 percent of Target's customers use its in-store pharmacies. But CVS executives expect to increase that once they are converted.

Once each pharmacy is converted to the CVS banner, customers will be directed to use CVS.com and its mobile app to refill prescriptions. In the meantime, customers can still refill prescriptions the way they did before through Target's systems. But Target's Healthful pharmacy app will be gradually discontinued for each pharmacy as the transition is made to CVS.

Redcard holders will no longer be able to get the 5 percent discount they enjoyed on prescriptions once locations are converted. Target's pharmacy rewards program, which gave customers 5 percent off a Target shopping trip for every five prescriptions filled, was discontinued in December. However, customers can still redeem unused certificates.

CVS will roll out its own loyalty program at converted pharmacies in which customers can get $5 in rewards for every 10 prescriptions filled.

As Target builds new stores, CVS will run the pharmacies in them.

"I would think about this as a long-term partnership," said Cornell. "We think the power of these two brands are going to complement each other and we're going to work side by side as we think about our future plans in those markets."

Merlo acknowledged there could be some overlap in those locations with nearby CVS stores. "But that is certainly the exception and not something we're concerned with," he said.

Kavita Kumar • 612-673-4113