Federated Department Stores (Cincinnati) is rumored to be interested in the Marshall Field’s department store chain that its owner, Target Corp. (Minneapolis), is reportedly interested in dumping.
Target has said it will consider selling its Mervyn’s and Marshall Field’s stores and has hired an investment firm to broker a possible sale.
Federated officials declined to comment on the report in The Cincinnati Enquirer. But that didn’t curb speculation from industry watchers. “Marshall Field’s would definitely be a good fit for Federated,” said Joseph Beaulieu, a retail analyst with Morningstar Inc. (Chicago). “They carry similar lines and have similar clientele. I think Federated would definitely be interested in Marshall Field’s at the right price. The question is, can they get that price?”
Target said its two department store divisions have a combined book value of $3.6 billion. Marshal Field’s, in particular, won’t come cheap, Beaulieu said. For one thing, Target owns most of the property on which its Marshall Field’s stores sit, which means a potential buyer would have to buy the land as well as the stores unless a lease arrangement could be reached.
But Federated could be getting significantly increased market share nationwide and a boost to its already considerable buying power, which would allow the company to negotiate better prices from apparel vendors and other suppliers.
In addition, said the Enquirer, Marshall Field’s occupies some of the best retail real estate in the country and, because it’s focused on the upper Midwest, Marshall Field’s has little market overlap with Federated stores.
“The real estate is outstanding; they’re in all the good malls,” said Kurt Barnard, president of Retail Forecasting (Upper Montclair, N.J.), and a regular VM+SD contributing columnist. “But the question for Federated is how much money would it take to integrate the business. This in not penny ante.” In addition to the purchase price, Barnard said the cost to buy Marshall Field’s would be inflated by administration and personnel costs associated with integrating operations.
Taking on those costs may be more than Federated is willing to handle, Barnard told The Enquirer, especially in light of its continued investment in its “reinvent the store” strategy over the past two years. “I think Terry Lundgren (Federated ceo) would probably be reluctant to burden himself with the need to integrate a completely new operation. He has his hands full already trying to turn Federated around.”