MERVYN’S MAPS REVIVAL PLAN
Byline: Mark Tosh and Jennifer Brady
NEW YORK — After overhauling 11 stores in Colorado last November, the new management at Mervyn’s may have found the right formula for pulling its entire chain out of the doldrums.
Mervyn’s, the promotionally bent moderate department store division of Dayton Hudson Corp., operates 286 units, including 127 in California, which have been battered by the state’s enduring recession.
According to Mervyn’s and analysts, the retailer’s Colorado strategy involved redesigning the stores and upgrading the merchandise. Some of those elements are being incorporated into many other Mervyn’s stores. Among the changes made in Colorado:
More on-trend merchandise, with a mix weighted more to brands and less to private label.
Better presentations through the use of tiered tables, grid walls and face-outs.
Friendlier customer service and a central checkout to speed transactions.
More consistent and competitive pricing.
Mervyn’s plans to measure the performance of its remodeled Colorado units at least through the end of the first quarter before making a final judgment on the new format, a spokeswoman said. She added that “for the most part [the changes] have been effective.”
More important than the redesign of the 11 stores, the spokeswoman said, is the merchandise changes Mervyn’s has introduced across the chain. They include a greater focus on fashion across all apparel and home lines and the addition of new categories such as body and bath, soft luggage and children’s books and videos. Robert Buchanan, an analyst at NatWest Securities, said he was quite impressed after a visit to a new Mervyn’s in Colorado.
“Mervyn’s is about to turn around,” Buchanan said in an interview. Based on this projection, he upgraded Dayton Hudson’s stock last Friday to “buy” from “hold” and boosted his earnings estimate for the fiscal year ending January 1996 to $6.48 a share from $5.98.
Buchanan said Mervyn’s management is finally “executing” plans after five years of “rhetoric.” He credited Paul Sauser, Mervyn’s president, chief operating officer and top man at the division since Joseph Vesce resigned as chairman last October, and Robert Ulrich, DH’s chairman and chief executive officer, for leading the turnaround.
Ulrich and Sauser are veterans of Target, the highly successful discount division of DH.
“The big thing about Bob Ulrich is that he is personally tackling the Mervyn’s problem,” Buchanan said. “He’s in the trenches trying to figure this thing out.”
The Mervyn’s stores in Colorado are now “clean and well-organized,” said Ofer Azrielant, chairman of Andin International, a fine jewelry supplier to Mervyn’s, J.C. Penney and Finlay Jewelry, among other retailers.
“I was impressed with the wide aisles,” he said. “I felt the store was laid out in a way that was easy to shop.” Mervyn’s has redesigned the jewelry department to include lower showcases with chairs in some areas, retrained store personnel and changed its advertising from a general approach to a focus on specific products, he said.
“They’re really getting a response,” he said.
Customers walking into Mervyn’s are generally seeking low-priced apparel or other budget products. But, according to Azrielant, Mervyn’s does well in fine jewelry, and many of the same customers might also spend $600 to $800 for a diamond item.
Mervyn’s, the weak sister at DH, reported a same-store sales decline of 6 percent in 1993 and expects to show a 1 percent decline for 1994, according to analysts. Operating profits fell about 37 percent in 1993 to $179 million.
Saul Yaari, an analyst at Piper Jaffray, noted that Mervyn’s has reduced inventory by 30 percent by switching to a just-in-time inventory management approach.
“Instead of buying in big ways twice a year, they are buying smaller quantities more often,” he said, adding that the change allows Mervyn’s to tie up less capital in inventory and reduce carrying charges.
Yaari said the seven stores Mervyn’s will open this year in Minneapolis and St. Paul, Minn., all acquired from Carson Pirie Scott & Co., will show even more design changes. The seven units are expected to open in time for back-to-school selling, he said.
Another 20 to 25 Mervyn’s stores are expected to be remodeled in 1995, analysts said.
Mervyn’s new look, Yaari said, should bring same-store sales growth of between 2 and 3 percent in 1995.
“They can do it if the California economy continues to improve and their [new] strategy is successful in the major markets,” he said.
Yaari also predicted that Mervyn’s will move its headquarters from Hayward, Calif., to Minneapolis within two years to cut costs, but he added that management has not confirmed such plans.
As reported, Mervyn’s said in December it would begin consolidating its credit operations with the department store operations of DH in Minneapolis this spring.
On the merchandising side, Buchanan of NatWest said the apparel is “much more in line with current trends” and brand names have increased to 60 to 65 percent of the selection from 50 percent. Mervyn’s has not added new brands; rather, those it already carries — including Bugle Boy, Union Bay and Levi Strauss — are being stocked in greater depth. Although only the 11 Colorado stores and a new unit in California feature the redesign, Buchanan said merchandise and pricing changes have permeated the chain.
“They have half the equation right — the merchandise and pricing,” he said. The challenge, he said, is to upgrade the presentation and service across the balance of the chain.