Increasingly Competitive Industry : Dayton Hudson Places B. Dalton Up for Sale
B. Dalton Bookseller, the nation’s second-largest bookstore chain, was put up for sale Tuesday by its parent company, Dayton Hudson, but industry analysts aren’t convinced that it will be a best seller.
The chain’s performance has suffered recently because of heavy discounting in the bookselling industry. About a year ago, B. Dalton decided to compete more directly with discounters such as Crown Books by marking down the prices of best sellers and other titles. As a result, profit margins got crunched.
However, Dayton Hudson said the decision to sell the chain, which had 1985 revenue of $538 million, was related more to the parent company’s strategy than to B. Dalton’s performance.
“B. Dalton continues to be a profitable, growing specialty store company,” Dayton Hudson President Boake A. Sells said in a statement. “However, the corporation believes that B. Dalton does not fit within its recent strategic direction.”
Sells noted in a telephone interview that B. Dalton is relatively small compared to the company’s other units, including Target, a discounter, and Mervyn’s, a department store. As a result, it “could not compete for its share” of capital for expansion, he said.
Robert Haft, president of Crown Books, a leader in the book-discounting pack, said of B. Dalton: “I think they’re the first casualty in the book marketing war. The book business has changed dramatically from the glory days when they would sell a book at full price. (Dayton Hudson) is trying to get out before the roof falls in on ‘em.”
Haft said he talked to Dayton Hudson about buying B. Dalton “a year or two years ago, but they were not interested at that time.” Would Crown still be interested? “It’s a possibility, but . . . we’d have to see the extent of (Dalton’s) deterioration,” Haft added.
Dayton Hudson shut down its 37-store Pickwick discount bookstore division in June, and retailing and publishing analysts said there has been a consensus recently that Dayton Hudson would put the B. Dalton chain up for sale.
“It doesn’t surprise me that Dayton is parting ways (with Dalton),” said N. Richard Nelson Jr., an analyst at Duff & Phelps in Chicago. “It’s a mature industry. . . . Dalton’s performance has been sub par, and the maturity of the business didn’t indicate that this is a growth vehicle any longer.”
Dayton Hudson started the B. Dalton chain, named for no one in particular, in 1966. The name Dalton was chosen “because it sounded English and sophisticated and was similar to the parent company’s name,” said Mary Lilja, a B. Dalton spokeswoman.
Initially, the cozy stores were outfitted with mahogany tables and chairs to give the feeling of an English reading room. As competition heated up, however, elegance exited in favor of an impression of floor-to-ceiling books.
Nelson and other analysts said they could hazard only wild guesses about a buyer or a price.
Monroe Greenstein, a retail analyst at Bear, Stearns & Co. in New York, said general merchandisers such as Sears, Roebuck & Co. and F. W. Woolworth might be interested. As for price, he said, “I’m guessing around $300 million.”
“The problem here is that there’s very little history of such major chains being sold,” said Kevin Gruneich, a publishing industry analyst at First Boston in New York.
In 1984, K mart bought Waldenbooks, the nation’s biggest book chain, for $295 million from Carter Hawley Hale Stores of Los Angeles, which sold the unit as part of an effort to thwart a corporate takeover. For the 1984 fiscal year, Waldenbooks had net earnings of $12 million on sales of $418 million.
However, observers noted that profit margins in the industry have declined considerably and competition has increased dramatically since then, so that a large chain such as B. Dalton is not likely to draw a premium.
B. Dalton had an estimated operating profit of between $21 million and $27 million in 1985. The company generated less than 4% of Dayton Hudson’s operating profit of $681.6 million and about 6% of the retailer’s $8.8 billion in sales. About 80 of B. Dalton’s stores and 800 of its 8,000 employees are in Southern California.
Sells said in the interview that “we have not entered into negotiation at all (and) have talked to no one directly.”
He added that Goldman, Sachs & Co. has been hired to talk to potential buyers and that “pricing has not been discussed.” Dayton Hudson said it intends to use proceeds from the sale to pay off debt.
In trading Tuesday on the New York Stock Exchange, Dayton Hudson shares climbed 12.5 cents to $43 a share. BOOKSELLER FOR SALE B. Dalton Bookseller, with 118 stores in California, is a unit of Minneapolis-based Dayton Hudson Corp. At the end of 1985, B. Dalton reported that it had 785 stores with total sales of $538 million. That made it the second-largest bookstore chain in terms of outlets and revenues as measured by BP Report, a book publishing newsletter in White Plains, N.Y. Here is a list of the largest chains, ranked by estimated 1985 revenues, as reported by BP Report. The revenue figures are based on the companies’ fiscal years.
Sales in Chain Stores millions 1. Waldenbooks 962 $565.0 2. B. Dalton Bookseller 785 538.1 3. Barnes & Noble 92 200.0 4. Crown Books 185 137.2 5. Kroch’s & Brentano’s 17 42.4 6. Zondervan 80 39.8 7. Doubleday 25 27.0- Bookshops 30.0 8. Coles (U.S.) 58 27.3 9. Gateway 74 26.5 10. Cokesbury 38 19.8