Target may sell Canadian pharmacy accounts

  • Article by: WENDY LEE , Star Tribune
  • Updated: November 18, 2011 - 9:10 PM

Such a deal would remove a big complication in the remodeling of Target's former Zellers stores.

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A Zellers store in Moncton, New Brunswick, Canada

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Target Corp. may sell off prescription files from its Zellers pharmacy business, which it acquired this year as part of its plan to open stores in Canada, the company said Friday.

Unloading the customer files would give Target time to focus on remodeling the Zellers stores. If Target holds on to the prescriptions, it would have to keep filling them for customers while it closes the Zellers discount stores to convert them to Targets.

Zellers is Canada's second-largest chain of mass merchandise discount stores. Target acquired the leases of 189 locations earlier this year and it plans to open most of its locations in 2013.

While the sale of the files allows Target to concentrate on store conversions, analysts say Target is giving up a key part of the Zellers business. The prescriptions are estimated to be worth $400 million to $600 million.

"They are giving it to their competition," said Jim Danahy, CEO of CustomerLAB, which advises retail pharmacy chains. "You give those patients away, it's going to be real hard and real expensive to get them back."

Like in the U.S., the bond between pharmacies and customers is difficult to break because consumers don't want to bother with giving a new pharmacy all their information. In Canada, it is even more difficult to get customers to switch because the government subsidizes the cost of a patient's drugs, meaning pharmacies aren't able to lure customers with discounts and promotions.

"It's not like winning back customers for a pair of shoes or a dress. This is health care," Danahy said.

Canadian pharmacies compete for customers by lowering their fee for dispensing the drugs, but that cost is usually small, ranging between $4 and $12 for each prescription.

In January, Target said it would buy up to 220 Zellers leases for $1.85 billion. The company ended up with 189 leases and said it would open 125 to 135 stores, spending $10 million to $11 million for each renovation.

Options for Zellers Rxes

Target spokeswoman Lisa Gibson said the retailer is considering other options for the Zellers prescriptions, but declined to say what they are.

We "haven't finalized our strategy," Gibson said.

Danahy said Target could consider keeping the Zellers pharmacy business open at their locations while stores are being remodeled or having a trailer on site that could provide prescriptions to customers.

Another option would be purchasing a nearby pharmacy and having Zellers customers go there, then combining the clients into Target when the stores open.

Katz Group Canada Ltd., a Canadian drugstore operator, said it is interested in buying the customer files.

"We will examine each situation to determine the proximity of our stores to the scripts that Target will sell," said Andy Giancamilli, Katz's CEO, in a recent interview with the Globe and Mail. "Based on the distance, competition and overall market, we will determine the bid or if we bid at all."

Impact on Canada

Danahy said competitors will not pay the market value for the files out of concern that Target will woo those customers back as soon as its Canadian stores open.

Selling the files would also be a missed opportunity for Target because when people pick up their prescriptions, they often load up on other items, Danahy said.

"Target is the biggest thing to Canadian retail since Wal-Mart," Danahy said. "Everyone is afraid of Target."

Wendy Lee • 612-673-1712

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