`Speed Is Life' At Dayton Hudson

If frustrated shareholders of Dayton Hudson Corp. were hoping to hear specifics from their newly named chairman-to-be at the retail company's annual meeting in Minneapolis last May, they were sorely disappointed. Robert J. Ulrich, anointed in a boardroom coup, didn't outline strategies to fatten the $21 billion company's anemic earnings, up just 5% in four years despite 45% growth in sales. Instead, Ulrich, head of Dayton's fast-growing Target discount chain, tossed around jargon about "delayering management" and creating a "boundaryless corporation." Then he left his audience to mull over one of his personal mantras--"Speed is life."

Bewildered shareholders soon found out what Ulrich, now 51, meant. Within weeks of assuming office in July, he dismissed 10 top Dayton executives and launched a broad effort to transplant Target's keener merchandising and nimbler logistics to the troubled Mervyn's midprice department-store chain. Nor did he forget the little things. Laser scanners on the selling floor, which have long allowed Target customers to do their own price checks, soon appeared in some Mervyn's stores. "He [moves] quickly," says Boake A. Sells, former Dayton president. "That's why he's had such personal success."

SUPERCENTER DILEMMA. Investors, who have seen Dayton stock languish for the past five years, loved Ulrich's sense of urgency. The stock briefly hit 86 after he took office. But now they want results--and fast. Their frustration is understandable. Dayton's stock is now trading below 70 a share, less than in 1990. If it enjoyed a typical retail multiple of 15 times projected earnings, the stock would be more than 100 a share, analysts say. But a big debt burden and stagnant sales in existing stores at Mervyn's, which contributes more than a fifth of Dayton's sales, have repeatedly torpedoed its shares. That has overshadowed Target's impressive string of 14% annual increases in revenue and consistent growth in existing-store sales. Target helped push Dayton's sales up 11% last year, to $21 billion. Operating profits hit $1.2 billion, up 9%.

Ulrich's most pressing task, clearly, is to fix Mervyn's. He also needs to revive Dayton Hudson's department-store division, which includes Marshall Field's, Dayton's, and Hudson's stores, where margins are a healthy 8.6% but sales are flat at $270 million. Even Ulrich's biggest success--Target--stands at a crossroads. Ulrich must decide whether to follow Wal-Mart Stores Inc. and Kmart Corp. into supercenters--giant stores offering groceries as well as general merchandise.

Ulrich, who joined the company as a merchandise trainee in 1967, relies on an inner circle of loyal followers. But he's also deeply involved in operations: He kept his title as chief executive of Target and is de facto CEO of Mervyn's. Ulrich was groomed at the company's flagship Dayton's department store but made his name at Target, where he carved out a niche for the 627-store chain as an upscale competitor to Wal-Mart and Kmart, with better apparel and brighter stores.

PARTY SHOPS. Target, which started with a fledgling store outside St. Paul in 1962, now accounts for 64% of Dayton's $21 billion in revenue. In some highly competitive markets, such as Chicago and Dallas, consumers rate Target ahead of Wal-Mart in critical areas such as quality, service, and store design--although it still can't beat the No.1 retailer on price. Still, "no one besides Ulrich has been able to compete against Wal-Mart. That's impressive," says Scott M. Mullinex, retail securities analyst with American Express Financial Advisors, which holds a 3.8% stake in Dayton.

Now, Ulrich, who declined repeated interview requests, needs to bring some of that feistiness to Mervyn's. The 286-store chain rebounded somewhat last year from a disastrous promotions program in 1993 as well as a stubborn recession in its important West Coast market. Operating profits, which fell 37% two years ago, to $179 million, climbed part of the way back in 1994, to $206 million, but sales growth remains sluggish.

Mervyn's has long struggled with outdated store designs and lackluster merchandise. In 11 Colorado test stores, Ulrich has added luggage, maternity wear, petites, and party shops with merchandise coordinated with children's apparel, a format that has done well at Target. Better ordering and distribution systems--also transplanted from Target--should keep Mervyn's clothing more current. And Mervyn's President Paul Sauser, former Target merchandising guru, now reports directly to Ulrich. But the chain is still far from robust. Mervyn's fourth-quarter sales in existing stores rose a paltry 2%, erasing a third-quarter decline. Meanwhile, it's facing increased competition from a revitalized Sears Roebuck and J.C. Penney, as well as from fast-growing Kohl's, a 108-store midprice chain based in Wisconsin.

URBAN EDGE. In the long run, though, the supercenter issue at Target could be the most important one facing Ulrich. Wal-Mart, with 147 supercenters, plans to build 100 more this year. Kmart will have 72 by yearend. Target will open its first two only this year. By going slow, Target risks ceding more ground to Wal-Mart, which already has built two centralized food-distribution centers. But Dayton, with a 64% debt-to-assets ratio, compared with just 53% at Wal-Mart, may be too heavily leveraged to catch up. And following Wal-Mart and Kmart into grocery supercenters might not make sense for Target after all. It does best in urban areas, where grocery-store competition is keener than in the small towns favored by Wal-Mart.

Can Ulrich keep all the Dayton balls in the air? Dayton's board is "very comfortable with the fine job he's doing," says John R. Walter, a Dayton director and chief executive of R.R. Donnelley & Sons Co. But clearly there are doubters, as Dayton's stock price proves. Speed may be Ulrich's life, but he may still not be fast enough to suit Dayton's restless shareholders.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE