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Aiming at the Bull’s-Eye: Target Move Signals New Strategy in Retail

Some see Target Corp.’s decision to sell its Marshall Field’s and Mervyn’s units as a sign that the era of retail conglomerates is coming...

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Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates, added, “What’s happening is the extreme differences in corporations is narrowing. They’re becoming more focused. With a more focused approach, they’re getting much more leverage instead of multitasking.”

In Target’s case, selling off its two department store divisions will enable it to focus on its core 1,167-store mass-market chain, where it is a strong number two in the U.S. But number one is Wal-Mart, the world’s largest retailer with sales of $256 billion a year — a number that dwarfs Target’s revenues of $47 billion. To spur growth, Target is accelerating the opening of its Super Target format that combines general merchandise and food. Target needs to substantially grow its food sales if it wants to close the gap on Wal-Mart even partially — its aim is to grow sales fourfold by 2012, to about $160 billion, although analysts are worried the new focus on food might distract the retailer from its general merchandise development.

Meanwhile, news of the putative sales of Field’s and Mervyn’s — which had long been speculated about — had industry experts wondering what company is most likely to go after the two divisions.

In a research note, Smith Barney analyst Deborah Weinswig applauded Target’s decision and said it would allow a “keener focus” on the flagship business. She raised the stock’s target price to $50.

“A return to better health [for Mervyn’s and Field’s] would take too many years,” she wrote. “We believe that [Wednesday’s] announcement is indicative of management’s belief that a turnaround of Mervyn’s and/or Marshall Field’s in a timely manner is unattainable.”

Assuming a purchase multiple of 0.6 times gross sales, she valued Mervyn’s at $2 billion and Field’s at $1.4 billion. She agreed with industry consensus that the company will not lack for interested buyers.

Kohl’s is “the first to come to mind,” as a buyer of Mervyn’s, she observed. She also noted that Kohl’s stated goal to grow square footage by 15 percent rather than their customary 20 percent next year may “lend credence to our theory that they could be a potential buyer and grow square footage through an acquisition of Mervyn’s real estate.”
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