MINNEAPOLIS -- After years of failing to extract much growth from its department store division, Target Corp. plans to let someone else try.
May Department Stores Co. announced Wednesday that it will pay $3.24 billion in cash to acquire the Marshall Field's division from Target.
In early trading Thursday on the New York Stock Exchange, Target shares climbed $1.45, or nearly 3 percent, to $47.08 while May shares gained 12 cents to $29.
The chain gives St. Louis-based May a far bigger Midwest footprint, with 62 Marshall Field's stores, mostly in the Chicago, Detroit and Twin Cities areas, along with three distribution centers, nine Mervyn's locations in the Twin Cities, plus about $600 million owed on Marshall Field's credit cards.
For Target, the sale represents a welcome divestiture from a lucrative but slow-growing department store business - and billions it can spend on buying back shares.
"Certainly Target must be very satisfied for $3.2 billion for Marshall Field's, especially given its lack of performance under its stewardship," said analyst Robert Buchanan of A.G. Edwards & Sons in St. Louis.
He said he thinks May will be able to run the stores more efficiently, and thus more profitably, than Target had. The company already operates 438 department stores, including Lord & Taylor and Filene's.
"This is a banner day for May," company chairman and chief executive Gene Kahn told The Associated Press. "I think that it makes us a stronger company. It fills in a vital geographic hole within the Midwest market."
Shoppers will see little difference once the purchase is completed, Kahn said. The company plans to keep the Marshall Field's name and operate it as a stand-alone division based in Minneapolis. It said it would offer jobs to all 25,000 Marshall Field's employees.
"We fully intend to retain the distinctiveness of Marshall Field's as an upscale retailer," Kahn said.
Target plans to repurchase $3 billion worth of stock over the next two to three years.
May said it expects the sale to close in late July or early August, with Marshall Field's boosting earnings beginning in fiscal 2005.
Target announced in March that it would review "strategic alternatives" for Marshall Field's and Mervyn's, its San Francisco-based mid-priced chain. Target said on Wednesday that the Mervyn's review is continuing.
Target said it will close the nine Twin Cities Mervyn's stores being sold to May. May spokeswoman Sharon Bateman said those stores would either become Marshall Field's or be redeveloped. She said the company would not bring any of its other stores into the Twin Cities at those locations.
The closures will put 780 employees out of work, although Target said they could apply for other positions within Target Corp.
Analysts have said that Mervyn's, with 266 stores in 14 states, might be valuable mostly for its real estate.
Target stores began as an outlet in a Minneapolis suburb for Dayton's department stores in 1962. By 1977, Target stores were the company's biggest moneymaker, and Dayton Hudson changed its name to Target Corp. in 1999. In 2001, the company adopted Marshall Field's as the name for all of its department stores.
Growth at the company's flagship Target stores has far outpaced Mervyn's and Marshall Field's for years. In the first quarter of 2004, Mervyn's revenue and comparable-store sales both dipped 1.4 percent, with revenue of $793 million. Revenue increased 4 percent to $614 million at Marshall Field's, and comparable-store sales were up 6.1 percent. Meanwhile, revenue from Target stores increased 14 percent to $10 billion.
Marshall Field's was a good buy for May, but maybe not a good fit, said George Whalin, president of Retail Management Consultants in San Marcos, Calif.
"May Company typically has run down-and-dirty department stores that jam a lot of merchandise and run them pretty lean without much help, so they don't have a lot of service," he said. That's a very different type of store than the upscale image Target has cultivate at Marshall Field's, he said.
That's what worried Kathy Uggen as she flipped through blouses Wednesday at the downtown Minneapolis Marshall Field's.
"I'm afraid that when May owns it the clothing will be on a lower scale," said Uggen, who said she's been shopping there since 1963. "I just don't understand how Target could do that to Minneapolis."
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