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Friday, October 17, 2008

Mervyns & Linens & Things Declare BANKRUPTCY and File for Chapter 11 Protection

Mervyns, the 59-year-old department store chain based in Hayward, is closing up shop.

The ailing retailer, which filed for Chapter 11 bankruptcy protection in July and planned to close 26 stores, said Friday it now plans to liquidate its remaining 149 locations and shutter the business after the holiday season.

"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, Mervyns' chief executive, in a statement.

Mervyns plans to hire an outside liquidator to hold going-out-of-business sales during the holidays. The company said it determined liquidating its inventory was the best way to maximize value for its creditors. Company officials declined to comment beyond the press release.

Mervyns, a privately held company that operates 175 stores in seven states, is the latest in a string of retailers to go belly up or file for bankruptcy reorganization in the wake of the severe credit crunch and overall dismal economy.

Earlier this week, Linens 'N Things backed out of restructuring plans that included some store closures and decided to shut its remaining 371 stores. Other well-known retailers to file for bankruptcy include Shoe Pavilion Inc., Sharper Image Inc. and Steve & Barry's.

Consumer spending, an early barometer of the economy, is down as shoppers cut discretionary spending amid fears of economic woes. The U.S. Commerce Department last week said September retail sales dropped 1.2 percent, the largest monthly decline in three years.

To make matters worse, retail watchers predict this holiday season will be the worst in recent years.

The National Retail Federation on Thursday released a survey that predicts the lowest increase in consumer spending since 2002. And, for the first time, survey participants said they would spend less on gifts for family members than the previous year.

Mervyns's bankruptcy did not surprise retail consultants, who have commented for years that the store has lost its footing.

Mervyns' customer base has been especially hard hit by the housing meltdown and high gas prices. The store's customers are typically lower to middle-income shoppers who live in areas especially hard hit by foreclosures such as California's Central Valley.

The department-store chain continued to lose ground against competitors such as Target, Wal-Mart and Kohl's, stores that managed to offer similar merchandise but with greater consumer appeal.

"They couldn't differentiate themselves form any of their competition," said Harry Bernard of Colton Bernard Inc., a San Francisco retail consultancy. "If you took away the element of price, the product Mervyns has ben selling could be found anywhere."

Mervyns was owned by Target Corp., for the most part under Target's previous incarnation as Dayton Hudson Corp., until 2004, when it was sold to a group of investors including Cerberus Capital Management and Sun Capital Partners. Mervyns pared down its number of stores and pulled out of several markets in an effort to improve profitability. Cerberus sold out of the chain last year, but retains some interest in the company's real estate.

On July 29, Mervyns filed for Chapter 11. The company at that time said it has a commitment for a $465 million debtor-in-possession loan from a lender group led by Wachovia Capital Finance Corp. The company expected to use that money to fund ongoing operations.

As part of its reorganization plans, Mervyns announced it would close 26 stores, 11 of which were in California, and keep operating as a smaller chain. Trendy retailer Forever 21 Inc. has reportedly expressed interested in the remaining 149 stores, but the company did not return calls for comment Friday.

"The real estate has a tremendous amount of value," said Helen Bulwik of New Market Solutions, an Oakland retail consultancy. "For the right retailer, those locations are quite enticing because Mervyns was a major force in California. That's where 80 to 90 percent of there stores were."

Bob Carbonell, chief credit officer at Bernard Sands, a credit monitoring and rating firm, said the holiday close-out sales mean creditors will at least be able to get paid through the holidays, but at steeply discounted rates.

"From a vendor point of view, it's disappointing because vendors loose another outlet for their merchandise," he said. "For employee it's a horrible time of year to face losing their jobs in an already difficult California economy. It's always a sad day when we lose a major retailer."

One vendor, who declined to be identified, said he was disappointed that Mervyns couldn't wait until after the holidays to begin the liquidation process and now expects to lose about $400,000.

"We knew they were going to blow up," said the vendor, referring to a total liquidation. "What we, meaning all vendors, did not think is that they would do it now."

Retail consultant Bernard said retailers should brace themselves for rocky times ahead.

"I believe there will be more companies biting the dust," he said. "If you have deep pockets - very deep - or if you have a unique fundamental position, you will be able to ride it out. But if you are a 'me too' or 'another me too,' it's going to be tough."

Mervyns Through the Years
-- Mervin Morris opened the first Mervyns (spelling of his name was changed) store in San Lorenzo in July 1949. The store measured 2,800 square feet and had two full-time workers and a few part-time employees.

-- The company grew through the decades, even as competition with Macy's, JC Penney and other retailers mounted.

-- In April 1971, Mervyns went public with a stock sale of 300,000 shares.

-- Mervyns in 1978 merged with Dayton Hudson Corp. in Minneapolis (now Target Corp.). The company expanded into the Southwest and the Pacific Northwest.

-- In September 2004, Target sold Mervyns to a private investment group led by Sun Capital Partners, making Mervyns again a privately held company.

-- Mervyns filed for Chapter 11 bankruptcy protection on July 29, 2008 and planned to close 26 stores by November.

-- Mervyns on Oct. 17 announced plans to hold liquidation sales at all of its stores through the holidays.


Earlier reports that local Mervyns and Linens-N-Things stores would survive mass closings elsewhere were too good to be true.
Both national retailers announced Friday that companywide liquidation sales had begun, or would soon, as the chains started winding down amid tough economic times.

The news was a shock to shoppers like southwest Bakersfield resident Deloris Waters, who had the impression the Mervyns on California Avenue was doing well.

And maybe it was. Inside the store Friday morning, dozens of people were going about their regular business -- shoppers and employees alike -- in the absence of any posted sign indicating that the end was near.

But when she thought about it for a moment on a sidewalk outside the store, Waters said the closure wasn't really a surprise.

"I think everybody's hurting," she said, adding that she had come to appreciate the store's bargains on clothing, jewelry and other items.

It was difficult to tell how much store workers had been told, let alone how many of them would be affected in Bakersfield. Local managers at both chains said they had been directed not to speak to reporters; they referred questions to East Coast spokespeople who were unable to provide any details about local stores or conditions.

An announcement from Hayward-based Meryvns said the company plans to begin going-out-of-business sales at its remaining 149 locations. It did not say when the sales would begin or end.

"The Company and its Board of Directors determined that holding going out of business sales during the holiday season is the best way to maximize value for the Company's creditors," the statement said.

In August the 59-year-old company said it would not close its two Bakersfield stores -- the one at 4450 California Ave. or the one at the East Hills Mall -- amid efforts to emerge from Chapter 11 bankruptcy protection, which it filed for in July. It said then only that it would close 26 stores by next month.

At the Northwest Promenade Linens-N-Things on Rosedale Highway, a bright yellow banner reading "Going Out of Business" went up Friday morning, as did window signs advertising discounts of 10 percent to 30 percent.

The New Jersey-based chain, which a spokewoman said started 35 to 40 years ago, said in May that it would close 120 underperforming stores -- but not the one in Bakersfield -- amid a debt reorganization petition.

But Friday's announcement said merchandise in all the chain's remaining 371 stores in 48 states would be sold off by the handful of liquidation specialists that now own the company.

Some customers outside the store Friday said they were hoping prices would drop further, and that they would not return until that happens.

"Even compared to the Target prices, they're still a little high," said shopper Ana Ellis, a resident of southwest Bakersfield who along with her mother picked up a hat rack and a fire starter Friday morning.

Ellis said she would come back "probably when (discounts) start hitting the 50" percent range. But she didn't want to wait until they hit 70 percent, because all that's left then is "pick-overs."

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