Castagna Will Try and Turn Mervyn’s Around
By George Anderson
When it was owned by Target, there was a belief at Mervyn’s that the chain was getting the ugly stepchild treatment.
Retail strategist Tom Kelley, a former public relations executive at Mervyn’s, told the East Bay Business Times, “Both Mervyn’s and Marshall Field’s got lost in the shuffle at Target. Both brands really deteriorated as a result.”
It was in this “deteriorated” state that an investment group of Cerberus Capital Management, Sun Capital Partners Inc. and Luber-Adler/Klaff and Partners LP bought Mervyn’s from Target last summer.
With the announcement last week that Vanessa Castagna, the former chief executive of JCPenney’s stores, catalog and Internet businesses, is taking over as chairwoman at Mervyn’s, there is hope the department store chain will get the kind of attention required to turn its lagging business around.
Ms. Castagna has been given much credit for a similar turnaround achieved when during her five years at Penney.
George Whalin, president of Retail Management Consultants and RetailWire BrainTrust panelist, said, “She’s as good a choice as you could make; a first-class executive who truly understands merchandising.”
“The most important thing she needs to do is make the store’s products more fashionable and desirable, which is exactly what she did at JCPenney,” he said. “Mervyn’s has the same customers as Penney’s, so she really knows how to appeal to those shoppers.”
Will Ander, senior partner at McMillan-Doolittle’s retail strategy firm, also gives Ms. Castagna high marks but isn’t sure if even she can overcome some of the obstacles he sees ahead for her at Mervyn’s.
“She’s a strong leader and very good at merchandising, but I’m not sure what strategy will work here,” he said. “Mervyn’s does not have a clearly differentiated position in the market and is second best to retailers like Target and Kohl’s. Its top-line numbers continue to go downhill, so there’s not a strong reason for the store to continue to exist.”
There is also a question of whether Ms. Castagna will be given the time necessary to right the ship at Mervyn’s, he said. “These investors do not have a 10-year outlook for this chain. They’re in the business of getting a return on their investment, so they are probably looking for a turnaround in three to five years. I don’t think they’re in it for the long haul to develop a sustainable, healthy company.”
Moderator’s Comment: What will Vanessa Castagna need to do as chairwoman of Mervyn’s to get the retailer turned around? –
George Anderson – Moderator
Ms. Castagna’s challenge differs in at least one crucial area to that which she faced at Penney. Mervyn’s lacks a profitable, defensible market positioning. The current space, between full-line department stores and chains, such as Penney’s and Kohl’s, has proven to be too small and poorly defined.
As a short term play, improving Mervyn’s operating results is absolutely within Ms. Castagna’s core competency. Fundamentally, Mervyn’s merchandising and store operations offer improvement in almost every aspect of people, process and technology. In consulting or investment banking terms, there’s a veritable harvest of “low hanging fruit”.
At the very least, look for an investment by Castagna in new people, processes and quick-payback technology. Within 18 months, these changes will have a positive effect on both top and bottom line performance. Mervyn’s has sufficient “foot steps” currently to pursue a short term strategy. With this improvement, the value will rise, and meet the objectives of the firm Ms. Castagna currently works for. Do not forget….this is an investment play, not a long term operator of retail chains.
Mervyn’s, as has been noted, was an afterthought at Target. The best talent was siphoned off, and management attention and focus lay elsewhere. The current cost of goods sold is inflated by poor negotiation. The merchandise mix is imbalanced and poorly structured. Promotional planning is badly executed, and seldom effective. Store appearance and operational efficiency reflect a lack of commitment. All of these are potentially within a “short term” impact horizon.
Ms. Castagna understands these points, and has already demonstrated the ability to manage toward sustainable operational improvement while generating immediate gains so necessary to the quarterly result mentality of Wall Street.
Long term, I reserve comment pending her ability to articulate a marketplace positioning with demonstrable value, where a defensible competitive advantage can be built and sustained.
To position myself, let me begin by saying, “Good luck, Vanessa Castagna. You are an excellent merchandiser, have well-proven your retailing skills, and deserve much more success.”
Reality, however, shows us that there are constant vicissitudes in the marketplace today, and with retailing as competitive as it is, I am reminded that one cannot easily fit ten pounds of improved retailing success in an available five pound sack. Mervyn’s, like Kmart, has been snake bit with a large segment of the shopping public while Target, Kohl’s and J.C. Penney have enhanced their positioning. Moving back toward “Mervyn’s of California” should be helpful if a “long term” is available but I’m inclined to believe a new paradigm will be necessary for Mervyn’s to regain its former dynamics within three to five years.
This is Vanessa’s chance to make the clearly-defined mark that was denied her at Penney’s. (Many give Questrom all of the turn-around credit at Penney’s, you know.) I’ve always said that Mervyn’s was Kohl’s before Kohl’s was Kohl’s, yet Mervyn’s let their assortments and store environments get musty. Mervyn’s will need to return to the trendy “Mervyn’s of California” days of yesteryear but should do it with proprietary brand acquisitions since H&M, Zara, Mexx, Mango and, oh yes, Kohl’s have been growing while they were asleep. There will be little room for error but a turn-around is possible.
I would hope that the core of what used to be in place at Mervyn’s is still accessible to Vanessa. When Kohl’s continues to be a rising segment, Mervyn’s needs to continue to build on the promotional strategy that was begun and neglected a few years ago, and focus on building a brand position that gives it a reason to be. She has a tremendous task ahead of her, but she brings the experience and ability to achieve what is needed.