Oct 17, 2008 11:47 am US/Pacific
Mervyns Stores Plan To Liquidate, Cease Operations
HAYWARD (CBS 5 / AP) ―
Department store chain Mervyns LLC will announce Friday that it is filing for chapter 7 bankruptcy protection which means the Hayward-based retailer must shut its doors and liquidate its inventory, sources told CBS 5.
Over the summer, Mervyns had filed for chapter 11 protection from its creditors in U.S. bankruptcy court for the District of Delaware. The company said at the time that it planned to continue business as usual while it reorganized.
The privately-held retailer, which has languished for several years, operates about 175 locations in seven states - but primarily in California.
Industry observers said the chain's heavy concentration in California, which is among the states hardest hit by the housing crisis, had made a turnaround very hard.
The 59-year-old chain had also been squeezed between high-end department stores and discounters like Wal-Mart Stores.
It 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 bought Mervyns from Target for $1.2 billion.
In April, Mervyns appointed John Goodman, who had been president and general manager of the Dockers branda key supplier to Mervynsas president and chief executive. But the chain's heavy concentration in California has made a turnaround harder.
Last month, Mervyn's 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.
Mervyn's said in the suit that the investment group, which included Cerberus Capital Management and Sun Capital Management, bought Mervyn's in 2004, acquired its real estate and leased it back to the company at substantially increased rates. Mervyn's says the increased rent was used to finance the buyout.
Mervyns officials declined to comment Thursday evening, except to say there would be some type of announcement from the company on Friday. Employees at Mervyns corporate headquarters told CBS 5 that they were asked not to talk with the media.
The expected announcement would mark the latest liquidation for a retailer and represents yet another blow to the nation's malls, which are seeing 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.
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