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Mapping the Store Traffic Attractors in the Target–CVS Deal

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Target’s trends in transactions and same-store sales

Target’s (TGT) customer traffic has been pressured in the last two years, partly due to the data breach in 2013. Plus, the number of transactions has been declining. Target will likely benefit from CVS’ experience in growing brownfield and greenfield businesses. We will discuss CVS’ recent acquisitions in more detail in Part 9.

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Pharmacy attractors

Having a specialized pharmacy operator like CVS in-store is likely to grow store traffic for Target and boost conversion rates. Target CFO John Mulligan noted that about 5%–7% of its customers use the in-house pharmacy. This makes a ready-made pharmacy clientele available to CVS, and it enables Target to benefit from operational improvements brought about by CVS.

Target’s pharmacy customers can get the benefit of CVS’ customer pharmacy programs like Maintenance Choice, Pharmacy Advisor, and Specialty Connect.

For CVS customers, the proximity to a mass merchandiser like Target can also prove to be an attractor, especially considering the complementary products in health and wellness that the retailer is ramping up. The complete one-stop shop offering by CVS–Target should provide CVS with a competitive advantage over peers Walgreens Boots Alliance (WBA) and Rite Aid (RAD). At the same time, rival mass merchandisers like Walmart (WMT) and Costco (COST) may have difficulty offering pharmacy customers the same choices.

CVS, TGT, RAD, and WBA are included in the portfolio holdings of the iShares Core S&P 500 ETF (IVV). IVV has 9.4% of its holdings invested in consumer staples (XLP) firms and 12.7% of its holdings invested in consumer discretionary firms.

We will discuss more traffic drivers for TGT and CVS in the next article.

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