Target to Sell Pharmacy Business to CVS -- What It Could Mean for Target

Updated from 9:27 a.m. with opening stock prices.

NEW YORK (TheStreet) -- The future of Target  (TGT) is unfolding under new CEO Brian Cornell, and that future could include relying more on other retailers.

On Monday, big box retailer Target announced it struck a deal with CVS Health (CVS) for CVS to acquire its pharmacy and clinic businesses for approximately $1.9 billion. Through this agreement, CVS Health will acquire Target's more than 1,660 pharmacies across 47 states and operate them through a store-within-a-store format, branded as CVS/pharmacy.

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In addition, a CVS/pharmacy will be included in all new Target stores that offer pharmacy services. Target's nearly 80 clinic locations will be rebranded as MinuteClinic.

Shares of Target were up 1.36% in early mornings trading, while shares of CVS were up 0.06%

"We believe this transaction presents a unique opportunity to partner with a best-in-class provider -- in a very complex space -- in which we are not well-positioned to be successful on our own," said a Target spokesperson in an email.

The move by Target resembles one often employed by department stores such as Macy's (M) and J.C. Penney (JCP) -- open shops with well-known brands such as Nike (NKE) and Under Armour (UA) that consumers know well. By doing so, a retailer such as Target benefits from CVS's trusted name in pharmacy services and frees up resources to invest elsewhere.

As for CVS, it gains instant access to higher-income Target shoppers, plus the opportunity to work closely with the retailer as it expands into urban markets and revamps its online business.

The Target spokesperson denied that the retailer would be looking to do similar deals with other retailers, saying that "for the remainder of our businesses, we either already have the assets we need to succeed or we are well on our way to developing them."

But CVS's move would seem to open the door for other store-within-a-store outposts in Target locations. A Whole Foods (WFM) organics shop? Why not? The organic grocer has a crazed following and could run organic operations better than Target. And a Target store might be an ideal fit for Whole Foods' new value-oriented 365: Everyday Value concept.

Another possibility might be a Best Buy (BBYshop inside of Target, featuring Geek Squad services. That would be a more effective use of space than what Target currently has.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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