Mervyn’s Charts Comeback With New Image, Old Tactics

Like a family with competitive children, Mervyn’s is burdened with some overachieving retail siblings. It hasn’t been able to keep up.

Now, under the watchful eye of corporate parent Dayton Hudson Corp., Mervyn’s has opened six stores in its home market of Minneapolis-St. Paul with a new California theme. Retail analysts say the Minnesota stores will ultimately determine the future of the moderately priced department store chain.

Mervyn’s has lagged far behind the performance of Dayton Hudson’s department stores - Dayton’s, Hudson’s and Marshall Field’s - and its discount chain, Target.

The division’s problems were largely responsible for a nearly 43 percent drop in second-quarter earnings at Dayton Hudson, and a nearly 56 percent decline in first-half profits.

“Mervyn’s has consistently failed to meet management’s objectives,” said Saul Yaari, a securities analyst at the investment firm Piper Jaffray. “We believe the management of the corporation is already engaged in discussions (to sell Mervyn’s), if the second half of the year is disappointing.”

The majority of Mervyn’s 294 stores are west of the Rockies, 127 in California alone. The chain operates one Spokane store.

Minneapolis-based Dayton Hudson, which bought Mervyn’s in 1978, acknowledges the division remains the corporation’s weak link.

Dayton Hudson reported that total sales for the four weeks ended July 29 rose 7.9 percent from a year ago. However, total sales at Mervyn’s dropped 6.5 percent and the division’s comparable-store sales - sales at stores that have been open at least a year - fell 8.5 percent.

“Obviously, the recent performance has been disappointing,” Dayton Hudson spokeswoman Susan Eich said.

Size, setup and a California theme will set the Minnesota stores apart from the rest of the chain. Mervyn’s is, in part, pinning its future on the hope that people who endure harsh winters are fascinated by the warmth, sun and trendiness of California.

The theme store concept is similar to changes that Denver-area stores made toward the end of 1994, the company said.

Carol Johnson, a Mervyn’s spokeswoman, said the Colorado stores were remodeled to make the stores more customer friendly. Some of the moves included centralized customer service, customer-service phones and the reintroduction of strollers.

In addition, the Colorado stores added maternity clothes, petite-size clothes and luggage - items that are also in the Minnesota stores, but not in the rest of the chain’s stores.

Even so, Yaari said the redesigned Colorado stores, though more successful than other Mervyn’s stores, have failed to meet Dayton Hudson’s expectations.

Dayton Hudson is leasing out part of the Minnesota stores to private vendors in an area called Club California, which features a family portrait studio, Ticketmaster services and a buffet-style restaurant.

But some industry analysts have said that with all the attention paid to the store components and customer surroundings, Mervyn’s may have forgotten what really matters to the average consumer - price.

“It’s not the presentation that’s the problem,” said Dan Barry, a retail analyst for Merrill Lynch in New York. “They don’t have the right merchandise at the right price.”

Barry used Kohl’s as an example of how a moderately priced department store can be successful. The Menomonee Falls, Wis.-based Kohl’s features more brand-name and sale-priced goods than Mervyn’s.

“You look at Kohl’s and you see that there is an opportunity to be successful,” Barry said.

Mervyn’s is following some of Kohl’s strategy with its Minnesota stores.

“There’s going to be more of a focus on the name brands that our guests are looking for,” Eich said. “There will be more items on sale each week than before. If you asked someone before what Mervyn’s was known for, they’d say, ‘Great sales,’ and we moved away from that a little bit. Now, we’re moving back.”

Eich said that once the new promotional strategy is implemented, the corporate office expects Mervyn’s revenues and profits to increase.

“We expect the second half of the year, especially the fourth quarter, will be significantly better,” Eich said. “We think it will validate our belief that Mervyn’s is headed in the right direction.”