Target Corp. should have little trouble lining up a buyer for its newly revamped Marshall Field's department stores, but the lower-end Mervyn's chain may prove a tougher sell, analysts said on Thursday.
The Minneapolis-based retailer's announcement on Wednesday that it might sell its slow-growing department stores drew cheers of "finally" and "at long last" from Wall Street analysts, sending the company's shares higher.
Target said it was reviewing strategic options for the chains, and had hired an investment bank.
Analysts estimated the department stores could fetch more than $3 billion, giving Target cash to buy back stock and time to focus on its more profitable discount stores.
Analysts named Federated Department Stores Inc. and May Department Stores Co. among the most likely bidders for Field's, but said Target may have to divide Mervyn's into regional chunks to sell off separately.
Target, whose discount stores are among the most successful at competing with mighty Wal-Mart Stores Inc., has been under Wall Street pressure for months to sell the department stores, which have been a drag on sales and profits.
"Finally, a potential sale," J.P. Morgan analyst Shari Eberts wrote in a research note.
"At long last," Deutsche Bank analyst Bill Dreher wrote. "We are relieved and pleased by the news and believe that Target Corp. stands to benefit from a potential jettison."
Smith Barney raised its rating on the stock to "buy" from "hold," and Credit Suisse First Boston upped its rating to "outperform" from "neutral."
Department stores have been under pressure for years as shoppers shun malls in favor of more convenient stand-alone stores and strip malls. Discounters -- including Target -- have upgraded their apparel and home decor selection, drawing even more shoppers away from traditional department stores.
Mall-based retailers accounted for just 19 percent of total retail sales in 2002, down from 38 percent in 1995, according to a Customer Growth Partners study.
Eberts said Target should have little trouble selling Field's, with chains including Federated and May among the likely bidders. Representatives for those companies did not immediately return calls seeking comment.
Target has spent heavily to rebuild the 62-store Field's chain, bringing in luxury brands, such as Thomas Pink dress shirts, which have resonated with shoppers. Field's generated much stronger than expected sales for February.
"We could get a bidding war between Federated and May," Deutsche Bank's Dreher said.
Target revamped its flagship State Street store in Chicago, adding services such as children's painted portraits and high-end fresh flowers, and small, luxury boutiques sprinkled throughout the store.
Mervyn's may prove less appealing, however, because its lower-priced stores face fierce competition from Kohl's Corp. and J.C. Penney Co. Inc.
Analysts said Target may be better served by breaking up the chain and selling it off in regional chunks to retailers that want to expand in those areas.
"I have a high level of conviction that there is no buyer for Mervyn's," Dreher said.
The 266-store Mervyn's chain has nearly half its stores concentrated in California, with the rest scattered through 13 states, largely in the U.S. West and South.
"A sale of its real estate may be the best way to create value," J.P. Morgan's Eberts said.