NEW YORK – Ailing department store chain Mervyns LLC, which had been operating for almost five decades, has become the latest merchant headed for extinction.
The retailer, which filed for Chapter 11 bankruptcy protection in July, said Friday that it plans to begin liquidation sales at its remaining 149 stores and wind down its business. The Hayward, Calif.-based chain said liquidation sales during the holiday season were the best way to maximize value for the company's creditors after exhausting all its options, including the sale of the company.
It also cited a fierce retail environment and declining liquidity as factors forcing the company's liquidation. Mervyns now operates mainly in California and has seen its sales drop further as the state is among the hardest hit by the real estate slump.
Mervyns said it plans to pursue the liquidation under the Chapter 11 bankruptcy code, a move that typically allows companies to retain more control over the selling off of assets. In a Chapter 7 filing, the court would immediately appoint a trustee to take over the case. The company said it intends to retain an outside professional services firm to assist in the liquidation sales of inventory.
"We are disappointed with this outcome but the company's declining liquidity position and the extremely challenging retail environment, together with the fact that we have exhausted all other possibilities, requires that we take this action," said John Goodman, chief executive of Mervyns, in a statement. "We are confident that the deep discounts available through going out of business sales will drive significant traffic in our stores."
Mervyns' announcement marks the latest retail obituary and represents yet another blow to the nation's malls, which are grappling with increasing vacancy rates in a deteriorating economic environment.
On Tuesday, specialty retailer Linens 'n Things, which filed for bankruptcy protection in May, announced it will begin liquidation sales at its stores as early as this week after failing to find a buyer that wanted to operate the company.
The Bombay Co., the home-accessories retailer that filed for Chapter 11 bankruptcy in September 2007, liquidated its business in the U.S. during last year's holiday season.
Gadget retailer Sharper Image Corp., which filed for bankruptcy in February and eventually liquidated its stores, is seeking a new life as a wholesaler. It announced on Monday it signed a $540 million licensing agreement with manufacturer HoMedics to create gadgets to be sold in the U.S. and elsewhere.
For mall landlords, the effect of Mervyns' liquidation "could be significant," according to Richard D. Hastings, a consumer strategist with Global Hunter Securities. He added, however, he doesn't believe that Mervyns' liquidation sales would be a huge blow to store competitors because bankrupt stores undergoing organized liquidation sales usually sell the best brands to discounters and closeout chains.
According to the company's Web site, Mervyns was founded by Mervin Morris who opened the first store in San Lorenzo, Calif., targeting young families. According to the site, Mervyns was the first retailer to offer customers revolving credit.
But in recent years, Mervyns, squeezed between high-end department stores and discounters like Wal-Mart Stores Inc., had been struggling with sluggish sales. Before its bankruptcy filing, Mervyns had been shuttering stores and leaving states such as Oregon and Washington since 2005, after a consortium of private equity players including Sun Capital Partners Inc. bought Mervyns from Target Corp. for $1.2 billion.
In April, Mervyns appointed Goodman, who had been president and general manager of the Dockers brand — a key supplier to Mervyns — as president and chief executive. But the chain's heavy concentration in California has made a turnaround harder.
Last month, Mervyns sued the private equity firms involved in the leveraged buyout of the chain from Target, alleging the deal stripped the retailer of its real estate assets, forcing it into bankruptcy.
Mervyns said in the suit that the investment group, which included Cerberus Capital Management and Sun Capital Management, bought Mervyns in 2004, acquired its real estate and leased it back to the company at substantially increased rates. Mervyns says the increased rent was used to finance the buyout.