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TARGET STILL SEEKS BUYER FOR MERVYN'S

BY IAN RITTER

Having just unloaded its Marshall Field’s chain, Target Corp. is turning its attention to selling Mervyn’s —a more challenging proposition, many say.

Target announced the $3.2 billion sale of the 62-unit Marshall Field’s to The May Department Stores Co. last month. At the time, the discounter said it could take up to 90 days to decide what to do with the 266-store Mervyn’s. (May took care of part of the problem, agreeing as part of the Marshall Field’s deal to acquire nine Mervyn’s in the Minneapolis-St. Paul area.

Analysts say that another retailer, such as Kohl’s, could buy the chain simply for its real estate, most of which is on the West Coast. But others say Target, owner of 1,249 discount stores, would probably seek to avoid the bad publicity that could follow the layoffs of 25,000 employees should Mervyn’s be sold that way.

“We now believe that Mervyn’s is likely to be sold to a financial buyer or party that is willing to turn the business around,” said Smith Barney retail analyst Deborah Weinswig, in a report released shortly after the Marshall Field’s announcement.

But a Mervyn’s sale that leaves the concept intact may be hard to achieve, says Gregory T. Karlen, president of developer Madison Marquette, in a March interview. “Mervyn’s is going to be problematic,” he said. “I can’t see a single buyer buying the whole block.”

If the Marshall Field’s acquisition is any indicator of investors’ faith in the mall sector, a Mervyn’s deal would be even more so, says one real estate analyst, requesting anonymity. May’s acquisition of Marshall Field’s, though for a higher price than expected, was by a company that already had a lot invested in malls, the analyst says.

“Clearly, it suggests there’s still value in the mall,” the analyst says. “But it’s a mall-based company, and they’re biased.” If a Kohl’s or some such nonmall anchor chain were to buy Mervyn’s, that would be an even greater endorsement of the mall sector, the analyst speculates.

The property owner with the highest exposure to both Target chains is General Growth Properties, which has 26 Mervyn’s and 13 Marshall Field’s in its portfolio. The two constitute a combined 6 percent of its anchor space, according to Morgan Stanley.

But May, with 438 department stores, outbid Federated Department Stores. The purchase strengthens May’s presence in such Midwest metropolitan areas as Chicago, Detroit and Minneapolis. May runs the Famous Barr, Jones Store and Lord & Taylor chains in Midwest states.