What Drucker Would Say About Mervyns

The department store is filing for bankruptcy because, in large part, it's been operating under a "theory of the business" that's no longer relevant

by Rick Wartzman

Mervyns portrayed itself as a victim of the crummy economy and a miserable retail environment last week as it filed for Chapter 11 bankruptcy protection. But in truth, a key part of the department store chain went bankrupt long ago. It's what Peter Drucker called the "theory of the business."

Every organization rests upon a set of such premises—fundamental notions about customers and competitors, about technology, about a company's own strengths and weaknesses. When an enterprise fails, Drucker explained, it is often because "the assumptions on which the organization has been built and is being run no longer fit reality."

As obvious as this may seem, it can be surprisingly hard to see. Many times, managers become preoccupied with how they are doing things. But what's equally important—maybe even more important—is what they are doing in the first place. As Drucker noted: "There is surely nothing quite so useless as doing with great efficiency what should not be done at all."

In a 1994 Harvard Business Review article, Drucker asserted that when a valid theory of the business is "clear, consistent, and focused," it's bound to be "extraordinarily powerful."

Naming the Mission

It all starts with mission. Drucker cited, for example, Sears Roebuck (SHLD), which "in the years during and following World War I defined its mission as being the informed buyer for the American family. A decade later, Marks and Spencer (MKS) in Britain defined its mission as being the change agent in British society by becoming the first classless retailer."

Mervyns, launched in San Lorenzo, Calif., in 1949, once had its own compelling vision of what it should be: a store that would provide high-quality products at a good value, filling a niche between Sears and Montgomery Ward at the lower end of the market and fancier, white-glove merchants at the upper end.

Through the 1950s and '60s, Mervyns prospered under this formula, even in the face of heavy competition from J.C. Penney and others. In 1971, the company went public, and it soon boasted dozens of stores bringing in hundreds of millions of dollars in revenue. Seven years later Dayton Hudson (now Target (TGT) acquired Mervyns and pushed it into Arizona, Louisiana, New Mexico, Oklahoma, Oregon, and Washington. In 1983, Mervyns opened its 100th store. (It has 177 now.)

But all the while, its basic theory of the business stood still; in fact, Mervyns continues to tout itself as "the prototype for the mid-range department store."

The trouble is, all around it, things changed. More and more players barged into the space that Mervyns had comfortably occupied—Kohl's, most prominently. Meanwhile, the whole idea of "mid-range" had itself become blurry, as those considered lower-tier began carrying trendier goods and designer labels. "There is no middle anymore," says retail consultant George Whalin. "It doesn't exist."

Under such challenging conditions, what should Mervyns' theory of the business have become?

"That Emotional Connection"

There are no easy answers. But Tom Kelley, a branding expert with Concept Group USA who briefly worked at Mervyns, expressed little doubt when I posed the question to him. He believes that each store should have accentuated its "homespun feel," deeply integrating itself into the community where it operated. He would have recruited store managers from local colleges, encouraged them to be active in civic affairs, and had them serve as a highly visible and welcoming presence for shoppers. "It's all about building that emotional connection with your customer," Kelley says.

Business Exchange

Track and share business topics across the Web.