Ailing department store chain Mervyns LLC, 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.
Ailing department store chain Mervyns LLC, 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-based chain said in a statement that after completing a thorough analysis of all available options, including a sale of the company, the board determined that holding liquidation sales during the holiday season was the best way to maximize value for the company’s creditors. It also cited a challenging 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.
Garrett Toy, business assistance and housing services director, said the city is disappointed with the pending closure of the Morgan Hill Mervyns store.
“It appears the liquidation sales will occur during the holiday season, which will be good for Morgan Hill shoppers in the short term,” Toy said. “Although sales tax revenues from the store have declined over the past 3 to 4 years, Mervyns was still one of the city’s top sales tax producers. The closure of the Morgan Hill store will leave a large retail vacancy in the center. However, the new Wal-Mart store slated to open in Cochrane Plaza will help backfill the loss of sales tax revenue from Mervyns once it opens.
Toy said staff will be working with the company and the owner of Cochrane Plaza to assist with the disposition of the property and in identifying a new use for the building.
A Mervyns employee declined to comment and a spokesperson’s voicemail referred calls to the store’s Web site. The Morgan Hill store employs more than 80 people, according to Toy.
Toy said his department is waiting to see what the plan is for the plaza, and then officials will find out what the city’s role will be in getting another business into the space on Cochrane Road at Madrone Parkway.
Mervyns plans to pursue the liquidation under the Chapter 11 bankruptcy code, which typically allows companies to retain more control over the selling off of assets. 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. “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.
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.
The big problem with Mervyns, a 59-year-old chain, was that it had been squeezed between high-end department stores and discounters like Wal-Mart Stores Inc. 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.
Staff writer Natalie Everrett contributed to this report.
