Dayton Hudson Corporation

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Dayton Hudson Corporation

founded: 1969

Contact Information:

headquarters: 777 nicollet mall
minneapolis, mn 55402 phone: (612)370-6948 fax: (612)370-5502 url: http://www.dhc.com

OVERVIEW

Dayton Hudson Corporation is a general merchandise retailer that may be more commonly known by its subsidiaries: The Department Store Division, Mervyn's California, and Target. The Department Store Division consists of 67 Dayton's, Hudson's, and Marshall Field's stores spread over nine states. The 295 Mervyn's California stores offer name brand casual apparel and home goods, and operate in 16 states. Target is a discount chain consisting of over 700 stores in 33 states. Customers are typically families and merchandise is varied, from trendy clothing to household goods. All of Dayton Hudson's customers are referred to as "guests." Overall, Dayton Hudson owns over 1,140 stores in 39 states.

COMPANY FINANCES

In fiscal year 1997 (ending January 31, 1998), revenues were $27.76 billion, a nine-percent increase over the previous fiscal year. Financial data for the past five years is as follows (all amounts shown are in millions): Revenue for 1997, $27,757; 1996, $25,371; 1995, $23,516; 1994, $21,311; and 1993, $19,233; net earnings for 1997, $751; 1996, $463; 1995, $311; 1994, $434, and 1993, $375; earnings per common share for 1997, $1.80; 1996, $1.05; 1995, $0.67; 1994, $1.70; 1993, $1.00. Of 1997 revenues, 74 percent were from Target, 15 percent were from Mervyn's, and the Department Store Division contributed 11 percent of revenues.

ANALYSTS' OPINIONS

Many industry analysts consider Dayton Hudson stock a stable or growth-oriented investment. Zacks research analysts, overall, recommend Dayton Hudson stocks. Of 14 brokers surveyed, seven call Dayton Hudson stock a "strong buy," four recommend it as a "moderate buy," and three recommend holding existing stocks. None suggested selling the Dayton Hudson stocks. Dayton Hudson stocks are ranked 11 of 24 within its industry. Zacks analysts further predict an increase in per share price from fiscal year 1997 to fiscal year 1998.

Dayton Hudson itself was "comfortable" with estimates conducted by median analysts for fiscal year 1998; a 16-percent growth for the year was predicted. Additionally, on May 19, 1998, Merrill Lynch announced that it had raised its estimates for Dayton Hudson based on first-quarter earnings exceeding earlier expectations.

HISTORY

The Dayton Hudson Corporation has its origins in companies founded more than 100 years ago and has a long history of acquisitions and expansions. In 1881 the J.L. Hudson Company was founded in Detroit. Over 20 years later, in 1902, the Dayton Company was founded in Minneapolis. The two companies didn't actually merge until 1969. In the meantime, however, the Dayton Company acquired J.B. Hudson, a jeweler in Minneapolis, in 1929. In 1956 Dayton opened Southdale, marking the origins of the mall concept—Southdale was the world's first completely enclosed two-tier shopping center. In 1954, J.L. Hudson opened Northland Center in Detroit, and it was the world's largest shopping center at that time. Entering its foray into discount chain stores, Dayton opened the first Target store in 1962. In 1966 Dayton created B. Dalton Bookseller and made its stock publicly available in 1967. Also in 1967, J.B. Hudson and Shreve and Co. merged to form Dayton Jewelers. A merger of Dayton Department Store, Lipmans, and Diamond's occurred in 1968, and in 1969 the Dayton Hudson Corporation was formed when Dayton Corporation and J.L. Hudson Company merged. Dayton Hudson continued to acquire companies including Lechmere, a hardgoods retailer out of Boston, and J.E. Caldwell, a jewelry chain based in Philadelphia. In 1971 revenues reached the $1 billion mark. In 1978 Dayton Hudson Corporation acquired Mervyn's; this made the company the seventh-largest merchandise retailer in the United States. In 1982 revenues reached the $5 billion mark. Annual revenues exceeded $10 billion in 1987, $20 billion in 1994, and $25 billion in 1996.

STRATEGY

Dayton Hudson's financial strategy involves keeping capital markets liquid, managing the amount of floating-rate debt, and maintaining a balanced range of debt maturities. The Target proprietary credit card, called the Target Guest Card, asserts the subsidiary's brand identity and elevates shoppers to a status usually associated with non-discount chains or upscale department stores. Mervyn's' individual strategy involved offering more national brands, such as Union Bay, Dockers, Villager by Liz Claiborne, and Haggar City Casuals. In a more focused marketing effort, Mervyn's vacated its Florida and Georgia markets in 1997 and closed seven other stores. Mervyn's also remodeled existing stores and invested in new fixtures and vendor merchandise shops for approximately 175 stores. Strategies for 1998 include installing vendor shops and completely renovating 10 store locations. The Department Store Division expanded its merchandise line for both vendor products and its own merchandise. In 1997 Hudson's of Port Huron, Michigan, and Marshall Field's in Columbus, Ohio, opened while two stores under the Department Store Division that were under-performing were closed.

Dayton Hudson continues to focus strategic efforts in the direction of the Target Guest Card to build customer loyalty. Strategies also involve consolidating operations and distributing data regarding key trends among its divisions. Dayton Hudson's long-range earnings growth objective is 15 percent or better.

Perhaps Dayton Hudson's biggest strategic undertaking is the implementation of its common information systems. Formerly, all of the finance, credit, sales processing, inventory management, and personnel systems were on a mainframe and handled independently through Dayton Hudson's three main divisions. Distribution centers and stores used client/server systems. Dayton Hudson is switching to an IP-based wide area network; the goal is to improve inventory management, which could result in a potential savings of $100 million annually. Also, the three divisions will be better able to facilitate the exchange and distribution of key trends and best practices. It is too soon to tell whether or not the strategy will pay off; if it fails, customer service would likely suffer, earnings may drop, and the system could turn out to be just too complex to handle. Dayton Hudson feels it's a risk worth taking because its ultimate success could result in a revolution in the 150-year-old retail industry. The control of labor and merchandise and a clear picture of consumers' needs are among the possible changes that could result. The way Dayton Hudson is handling the three-year project is by dividing it into hundreds of smaller projects with shorter turnaround times of six to twelve months in length.

INFLUENCES

Dayton Hudson's strategies have been influenced by pressure to improve financial performance or consider a merger. In 1996 Dayton Hudson rejected J.C. Penney's proposal to buy Dayton Hudson at what was then a substantial increase in per share price. J.C. Penney offered a stock-and-cash proposal of $90 to $95 per share while Dayton Hudson's stock was at $76. The bid would have been worth $6.82 billion. Although Target is Dayton Hudson's primary revenue producer, it is somewhat offset by the marginal profits of the mid-line Mervyn's. Thomas Buynak, an analyst at Society Asset Management, said, "This offer ups the pressure to deliver results and focus on their overall game plan." Dayton Hudson's Target chain represents about two-thirds of total sales and profits, so it is an attractive takeover choice.

CURRENT TRENDS

Besides the three-year plan to consolidate its systems operations, Dayton Hudson plans to continue its growth primarily through expansion and acquisition. In 1997 60 new Target stores were opened, including the retailer's first stores in Cincinnati, Philadelphia, and New York City. In April 1998 Dayton Hudson acquired Rivertown Trading, a direct marketing firm based in Minnesota. In October 1998 Dayton Hudson's Target division plans to open 23 new stores over 12 states, including its first store in Delaware. The stores will be opening in Exton, Pennsylvania; Wilmington, Delaware; Altoona, Pennsylvania; Princeton, Milltown, and Brick, New Jersey; Copiague, New York; College Point, Henrietta, and Victor, New York; Roanoke, Virginia; Kansas City, Missouri; Marietta and Douglasville, Georgia; Loveland, Colorado; Niles, Arlington Heights, and Highland Park, Illinois; Austin, Coon Rapids, and Fergus Falls, Minnesota; Watsonville, California; and Irving, Texas.

PRODUCTS

Dayton Hudson's Department Store Division has been focusing on expanding its own brands of merchandise in order to better penetrate the retail market and enhance company identification through product label. Products include Field Gear, Field Manor, 111 State, and Indeed. The Department Store Division has also been expanding its upscale merchandise to re-establish itself as a "fine" department store. The Division now offers Anne Klein II, Dana Buchman, Tommy Hilfiger, and Nautica. The Department Store Division also features a key trend or product in each of its stores. For example, in spring 1996 it introduced "The Player's Shop" to capitalize on the golf season. The shop was helped by the Dayton's Challenge Golf Tournament. Sales from golf equipment and apparel doubled over 1995.

FAST FACTS: About Dayton Hudson Corporation

Ownership: Dayton Hudson is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: DH

Officers: Robert J. Ulrich, Chmn. & CEO, 53; James T. Hale, Sr. VP, Gen. Counsel, & Sec., 56; Douglas A. Scovanner, Sr. VP & CFO, 41

Employees: 230,000

Principal Subsidiary Companies: Dayton Hudson Corporation owns and operates Dayton's, Hudson's, Marshall Field's, Target, and Mervyn's.

Chief Competitors: Dayton Hudson's primary competitors are both retail department stores and retail discount stores including: Ames Department Stores; Bradlees, Inc.; Dillard's, Inc.; J.C. Penney Company, Inc.; Kmart Corp.; Neiman-Marcus Group, Inc.; Sears, Roebuck & Co.; Strawbridge & Cloth-ier; The Bon-Ton Stores, Inc.; The Caldor Corporation; Value City Department Stores; Wal-Mart Stores, Inc.; and Woolworth Corporation.

Target competes with stores like K-Mart and Wal-mart by offering department-store quality merchandise at competitive discount prices. In 1996 Target launched a new line of its own products called Cherokee, consisting mainly of high quality casual wear such as t-shirts and sweatshirts. In its first six months, the Cherokee line exceeded the 18-month sales plan by $50 million.

Mervyn's plans to continually increase the name brands offered and to enhance product presentation in its stores. For example, Mervyn's added Fila and adidas to its athletic footwear merchandise offered and implemented in-store shops to increase brand recognition.

CORPORATE CITIZENSHIP

Dayton Hudson sponsors many community involvement programs through grants and volunteer work. In 1997 Dayton Hudson received the nation's highest honor for community service, the President's Service Award, for its Family Matters program. In June 1997 Dayton Hudson held a "Week of Giving," which involved thousands of volunteers committed to improving their communities. Dayton Hudson held the Week of Giving again in May 1998 and more than 10,000 youths were involved. Dayton Hudson's goal is to conduct a Week of Giving initiative in all of the markets it occupies. The company predicts as many as 1,000 of these projects may be completed.

Wherever Dayton Hudson opens a Target store, it establishes a Good Neighbor Volunteer Program, targeting the resolution of a specific community issue through volunteerism; over $1 million a week will be donated to the communities totaling over $57 million in grants in 1998. Target has given five percent of pretax dollars to communities having a Target store since its founding in 1962. In 1997 Dayton Hudson made over $46 million in donations to art, social, and education groups. It donated $2.8 million in corporate contributions to United Way organizations, and Dayton Hudson employees were responsible for an additional $10.2 million given to the United Way. Over $2.6 million in scholarships were provided by Dayton Hudson and over half a million dollars was raised for local schools by the Target Guest Card initiative; this program, called School Fundraising Made Simple, provided one percent of purchases made on Target Guest Cards to a school of the customer's choice.

Although Target makes the most donations and boasts the most revenue of the Dayton Hudson divisions, Mervyn's is also involved in community service. In 1997 its Childspree program provided 14,000 needy children with school supplies and clothes. Mervyn's also provides funding for workshops where parents learn to work with their children to help them succeed in school. Over 50,000 parents and children are involved in the program.

The Department Store Division initiated a fundraising effort for ten art and cultural groups through Hudson's, which provided a grant of $0.5 million, plus an additional $1 million to match community donations.

EMPLOYMENT

Dayton Hudson stresses a fast-paced environment in its recruitment efforts. It also holds numerous on-the-job training programs. Dayton Hudson had 230,000 employees as of the end of fiscal year 1997; of those, 166,000 were employed at Target, 29,000 at Mervyn's, and 35,000 in the Department Store Division.

CHRONOLOGY: Key Dates for Dayton HudsonCorporation

1881:: The J.L. Hudson Company is founded in Detroit, Michigan
1902:: The Dayton Company is founded in Minneapolis, Minnesota
1938:: Dayton's founder George Draper Dayton dies
1944:: Dayton becomes one of the first stores to offer its workers a retirement policy
1954:: Hudson opens the world's largest shopping center, Northland Center, in Detroit
1956:: Dayton opens Southdale, the world's first completely enclosed, two-tier shopping center
1962:: Dayton opens the first Target store
1967:: The Dayton Corporation goes public
1969:: Hudson and Dayton merge to become the Dayton Hudson Corporation
1978:: Dayton Hudson acquires Mervyn's
1987:: Dayton Hudson survives a hostile takeover attempt by Dart Group as well as a bogus counteroffer from an investor who, it was later revealed, had no financial backing
1997:: Dayton Hudson receives the President's Service Award for its community service programs

SOURCES OF INFORMATION

Bibliography

"company news on call." pr newswire, 13 july 1998. available at http://www.prnewswire.com/areports/342677.6.

"dayton hudson corp." yahoo! finance, 10 july 1998. available at http://biz.yahoo.com/p/d/dh.html.

dayton hudson home page, 13 july 1998. available at http://www.dhc.com.

"hoovers top employers." hoover's online, 10 july 1998. available at http://www.hoovers.com/browsetop/topd.html.

For an annual report:

on the internet at: http://www.prnewssire.com/areports/342677.6or write: dayton hudson corporation, investor relations, 777 nicollet mall, minneapolis, mn 55402-2055