May to use Field's as a platform

ST. LOUIS — The new steward of the Marshall Field's plans to leave the upscale retailer's merchandising team, market strategy and vendor structure largely intact. Further, the May Department Store Company wants to learn from Field's trend merchandising, extending it into other parts of its 438-store operation, especially in home.

"We intend to use Field's as a learning laboratory," said Gene Kahn, May chairman and CEO. The deal also gives May "a platform to work with vendors that Field's works with that May doesn't."

May announced last week that it will buy the 62-store department store chain from Target Corp. along with nine Mervyn's units in the Minneapolis/St. Paul market. May will pay $3.24 billion in cash, $700 million more than Field's $2.6 billion in 2003 revenue. The transaction is expected to close during the second or third fiscal quarter. Ultimately, the acquisition is expected to add 20 percent to May's $13.3 billion in revenue.

May generally receives high marks for operating efficiencies, but takes knocks for store design and merchandising that ranges from the pedestrian to the dowdy. Field's has been upscaling its merchandising, particularly at its historic State Street flagship in downtown Chicago, but has struggled to generate consistent profits.

May intends to leverage Field's merchandising across the company while putting some of its operating systems in place to improve Field's productivity, which averages $178 per square foot, executives told analysts last week in a conference call to discuss the transaction.

Said John Dunham, president, "Field's today bears a cost from the Target Corp. for what they're operating, which is a very fine set of systems for a mass merchant, but they don't really fit a department store model very well."

May expects those systems — primarily IT functions — to result in $85 million in cost savings next year and $149 million in 2006. Field's revenues are projected to remain flat in 2005 and climb slightly to $2.7 billion in 2006. EBIT is expected to hit $200 million next year and $265 the following year, according to May.

"There are very few (Field's) stores that you would say are low productivity," Dunham said. "A low store is still north of $100 (per square foot). Some of the super big stores are in the range of numbers that start with three."

May also plans to accelerate the rollout of Field's most fashion-forward merchandising ideas throughout the Field's chain.

"Their top 14 stores do in excess of $75 million each. These are big, powerful stores," Kahn said.

The company does not plan to close any Field's units, or put the Field's name on existing May stores, which include Filene's, Hecht's, Famous-Barr, Foley's, Kaufmann's, L.S. Ayres, Meier & Frank, Robinsons-May, Strawbridge's, Lord & Taylor and The Jones Stores as well as four bridal chains.

May's full-line department stores have been working to attract younger consumers. At Field's, May is interested in a customer segment Target Corp. dubbed "zoomers" — 40- to 60-year-old women with a higher-than-average income. Combining that approach with May's techniques for luring 20- to 30-year-olds should give Field's "a very strong one-two punch," Kahn said.

The acquisition of the nine Mervyn's boxes was largely a real estate deal, but not a requirement of the Field's purchase, executives said. Some of the more productive units may be converted to Field's stores to build the nameplate's presence in the market, where there are four Field's that do in excess of $70 million. The remainder will be sold or developed as other properties.