• Andrea Lillo

Neal chosen to lead Mervyn's

MINNEAPOLIS — Diane Neal, the newly appointed president of Mervyn's, inherits a division that had a sound performance last year, but now must prove it can repeat it.

Neal was promoted last week after her predecessor, Bart Butzer, was appointed executive vp, stores, Target division of Target Corp. He served as president of Mervyn's since 1997.

Mervyn's showed a strong profit recovery last year, with operating profits up 36.9 percent for the fourth quarter and up 16.3 percent for the full fiscal year. Target Corp. attributed the results to improved merchandising and inventory management. The division concentrated on weaving more fashion into its assortments.

The company's 2001 goal for Mervyn's is to maintain last year's momentum — a challenging feat in itself for the division, which is more often a weak performer.

"There's a lot of work to do at Mervyn's," said analyst Bill Dreher, Robertson Stephens. Mervyn's national-brands-for-less formula is "surprisingly basic" and can be easily mimicked by competitors, as shown by Kohl's, which "is able to do it at the store level correctly and generate excitement with marketing and credit card programs."

Target Corp. does deserve credit for improving Mervyn's operations, he said, but "it's not the focus of the company. The lion's share of management time is spent on Target."

Mervyn's stellar fourth quarter shouldn't yet be considered the definitive signpost for the retailer, Dreher added, since it had a disappointing fourth quarter 1999, with a 5 percent decline in sales, a 34 percent decline in operating profits and an operating margin decline of 5.4 percent.

And though fourth quarter 2000 had a gain of 279 basis points, compared against the decline of 257 basis points in fourth quarter 1999, it really only gained 22 basis points between the two years.

However, he added, "it's clear that Mervyn's is doing better."

Mervyn's will face another obstacle in two years when Kohl's breaks into California with an estimated 35 stores in Orange County, Dreher said, especially if the Kohl's stores perform as well as Kohl's New York stores, which reached mature store operation within one year of opening.

Dreher predicted that Neal will look to weed out the less-profitable store locations, bring more exciting national brands into the stores, merchandise in more innovative ways and attempt to generate stronger sales through marketing and credit card promotions.

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