Farrell Credited for May’s Image as Well-Managed

If German immigrant David May had been a better silver prospector, MayDepartment Stores might not be digging for gold now by offering to buy its tonier competitor, Associated Dry Goods.

When May and a partner didn’t strike it rich in the 1877 silver boom at Leadville, Colo., May started selling supplies to miners. His subsequent success led to a department store in Denver called the May Co., the first of what was to become 144 department stores in 10 different divisions.

May Department Stores has never been accused of being flashy. In fact, one generally admiring analyst characterized the stores as “blah.”

Although May has blazed few fashion trails and most of its store names aren’t widely known outside of their regions, the St. Louis-based retailer is regarded by observers as an extremely well-managed company that has maintained sales and earnings growth far above industry averages.

Much of that success is attributed to the single-minded dedication of Chairman and Chief Executive David C. Farrell, described as a “classic workaholic” and a “Type A, all the way” who has never worked for another company.

May has been trying to shake a dowdy image in recent years, analysts say, noting that one of the major attractions of Associated Dry Goods is its upscale and nationally known department stores--particularly Lord & Taylor. In addition, May would be buying some well-run discount operations and would eliminate itself as a possible takeover candidate.

May Department Stores “is the best-run middle-income department store chain in America, period,” said Monroe H. Greenstein, a retail analyst with Bear, Stearns & Co. in New York. “Their operating margins are very high.”

The company “is not terribly sexy or flashy, but it’s terribly solid,” said Olha Holoyda, an analyst with the Stifel Nicolaus & Co. brokerage in St. Louis.

In addition to its department stores, May has substantial real estate holdings with a net book value of $776 million. The company owns or has a partnership interest in 27 shopping centers anchored by May Co. stores, owns 60% of its department and Venture discount stores and owns the 178-acre Park LaBrea residential and commercial complex in Los Angeles’ Fairfax area. May also owns Eagle Stamp Co., a trading-stamp company that operates in eight states.

18% Return on Equity

May Department Stores hasn’t recorded a decline in earnings or sales in at least 11 years. For the fiscal year ended Feb. 1, May reported net earnings of $235.4 million on sales and rental income of $5.08 billion, compared to earnings of $214.1 million on sales and rental income of $4.7 billion in the previous year.

Return on equity, which was 18% at the end of the fiscal year, has been among the highest in the industry for the last three years, a company spokesman said.

The strong performance of recent years is the result of a new direction taken in 1982 that was christened “The May Mission: Excellence in Retailing.”

Under the program, goals were set for sales and earnings growth, among other things. The company began extensively remodeling its department stores, in some cases reducing the sales area to create “more focused and exciting shopping environments.” The remodeling program improved productivity as measured by sales per square foot, which was $123 in 1985, up 35% in three years.

May also has begun stressing higher-margined fashion merchandise “that will appeal to more style-conscious customers.”

Behind the performance of May Department Stores is the 53-year-old Farrell, who started working for the Kaufmann’s division in Pittsburgh under a work-study program while he was attending Antioch College in Ohio. Farrell became an assistant buyer after his 1956 graduation, rising through the ranks to become president of Kaufmann’s in 1966.

Failure to Delegate

Farrell was named president and chief operating officer of May Department Stores in 1975 and took on the chief executive’s title in 1979. Farrell recently became chairman and Vice Chairman Thomas A. Hays president.

Farrell has been criticized for a failure to delegate tasks and for his penchant for making all decisions, big and small. “The book on him used to be that he wanted to be running everybody’s business,” said an executive of a competing department store chain.

One oft-repeated story has Farrell renting a motor home for meetings with executives. He would hold meetings in the back as they would drive from store to store during marathon visits to Southern California so that a single moment wouldn’t be wasted in traffic.

But that appears to have changed, analysts said, noting that the company now likes to stress its management depth.

“Farrell is a good idea man, and Hays is more the operations person,” Holoyda said. “I think (Farrell) has really lessened his day-to-day involvement,” she said.

Greenstein said he doesn’t believe reports that Farrell has spread himself too thinly, “because the results have been excellent.”