For These Department Stores, Business Just Fair to Middling

Dave Charlton, a J.C. Penney Co. executive based in Buena Park, was driving his Mustang convertible under sunny skies recently when a black cloud formed in his mind.

“I was thinking, ‘My goodness, I’m not selling any coats today,’ ” the company’s special events manager said. “It’s hard to buy a winter coat when it’s 85 degrees.”

Even the weather is causing problems for traditional department stores, which are heading into a difficult holiday shopping season.

Despite costly make-overs and catchy advertising, middle-market department stores are losing ground. Price-conscious shoppers have been turning to discounters that have improved the quality and style of their products. Meanwhile, serious fashion mavens are shopping at specialty stores, where they can pick up trendy clothes or home furnishings, often at reduced prices.

Moreover, there are legions of teenagers with wads of spending money who rarely step foot in department stores.

The problems facing middle-market department stores were dramatized recently when Mervyn’s parent, Dayton Hudson Corp. threatened to close the foundering chain unless its performance improves.

And the performances of J.C. Penney and Sears, Roebuck & Co. offer additional evidence of difficult times for chains catering to families with incomes of about $40,000 a year.

At both chains, same-store sales--a key measure of growth--have taken an untimely downturn. In a bad omen for the holidays, sales were off during the back-to-school season, the second-biggest sales period of the year.

Once the bulwarks of retailing, department stores, their ranks thinned by mergers, are finding themselves stuck between thriving specialty retailers such as Gap and Crate & Barrel and discount powerhouses such as Wal-Mart, Target and Old Navy.

There are exceptions. Kohl’s Corp., operating in Midwestern and mid-Atlantic states, has bucked the trend by sticking with a strategy of selling popular brand names at reasonable prices. The Menomonee Falls, Wis.-based chain has 170 stores, up from 79 in 1992.

“Kohl’s has knocked the ball out of the park,” said Ildiko Hildreth, an analyst with Dain Rauscher Wessels. “That’s been a huge competitor that’s really grown up.”

One problem facing Sears and J.C. Penney is that there are few places left where they can expand. Their stores blanket major metropolitan areas, dot rural backwaters and anchor numerous malls. J.C. Penney, for example, claims more square footage than any other mall department store.

And in California, Mervyn’s has a significant presence, with 126 stores.

Analysts say that Mervyn’s problems stem from flip-flopping strategies over the last decade.

First, it went overboard with private labels, eliminating many brand names and annoying customers who couldn’t find what they wanted. Then, it trimmed or dropped critical categories.

In one particularly dizzying misstep, Mervyn’s decided in the early 1990s to stop selling dresses. When the company reversed course in 1995, dress sales added $90 million to the company’s annual sales.

Under the direction of President Bart Butzer, a veteran from Mervyn’s sister company Target, Mervyn’s has reduced the number of private labels and introduced new national brands such as Haggar, Russell athletic clothing and Sideout sportswear. Mervyn’s has also added new small electric appliance brands such as Cuisinart, Proctor-Silex and Braun.

But analysts, who have been pressuring Dayton Hudson to unload Mervyn’s, aren’t particularly optimistic about Mervyn’s outlook.

“There are so many choices as to where to shop,” said Gerald A. Hirschberg, an analyst with Standard & Poors Rating Services. “Why go back to Mervyn’s if you’re happy someplace else?”

Retail giant Sears managed to rebound from earlier difficulties but lately has hit more choppy waters.

Thanks to its 1993 “softer side” campaign emphasizing apparel and a cost-cutting effort, Sears’ performance improved steadily through 1996. Now, hoping to lure back customers lost to fashion-oriented discounters, Sears has begun touting value in its advertising. And, like Mervyn’s, it is turning to brands. It has added Vanity Fair, Krups and Maytag and next year will introduce an exclusive line from the trendy clothing label Benetton. Analysts have mixed opinions about Sears’ strategy.

By contrast, J.C. Penney has responded by touting its private-label lines such as its Original Arizona Jean Co. denim. Its ads shout “I love your style,” an attempt to make the chain appear more fashion-oriented. And the Dallas-based chain has opened home stores and expanded housewares and furniture in its department stores, thus developing niches where discount chains aren’t strong.

At the same time, J.C. Penney is working to improve inventory problems that sometimes have resulted in delays of six to eight weeks in getting merchandise to the floor.

Analyst Walter F. Loeb, president of Loeb Associates in New York, said J.C. Penney will eventually pull out of its current slump.

But J.C. Penney, like Sears and Mervyn’s, will have to contend with more and better competition, analyst Hildreth said.

“One could say there’s just too many players in this category.”