On Aug. 4, 2008, Hayward, CA-based Mervyns, a mid-tier department store chain with 176 stores in seven southwestern states, filed Chapter 11 bankruptcy. On Aug. 13, Mervyn's said it would close 26 (nearly 15%) of its stores by late October or early November. Mervyns said an undisclosed professional services firm would assist it in liquidating the closing stores.
Stores being closed are as follows: Phoenix (3) and Scottsdale (1), AZ; Antioch, Canoga Park, Fairfield, Foothill Ranch, Huntington Beach, Irvine, Laguna Niguel, Livermore, Napa, Palm Desert, and Thousand Oaks, CA; Boise, ID; Carson City, Reno, Las Vegas and Sparks, NV; Lubbock, Midland, Odessa, and San Antonio (3), TX.
Published Aug. 5, 2008:
Hayward, CA-based Mervyns, a mid-tier department store with 176 stores in seven southwestern states, filed Chapter 11 bankruptcy late yesterday. The filing was expected, as industry rumors had been circling for the last week that the retailer would likely file due to inability to pay lenders and vendors.
“Mervyns needs to reorganize its finances and operations due to the state of the economy and difficult operating environment for our industry,” said John Goodman, CEO of Mervyns in the announcement press release. He added that the company will continue to operate stores as normal as it moves through the bankruptcy process.
Wachovia Capital Finance arranged for a $465 million debtor-in-possession facility for Mervyns, which will be used to fund the company's ongoing operations.
Founded in 1949, Mervyns was acquired by Dayton Hudson Corp. (later known as Target) in 1978. In the late 80s, the retailer attempted to expand in the southeast (particularly in Atlanta and Florida) unsuccessfully, closing the stores by 1998. Mervyn's then turned its focus back to California and in late 2004 was sold to a private equity consortium including Sun Capital Partners, Cerberus Capital Management and real estate investment company, Lubert-Adler Management.
In August 2005, a joint venture between Developers Diversified Realty (NYSE: DDR
) and Macquarie Trust acquired 36 open and operating Mervyns stores, totaling 2.74 million square feet and located primarily in California, in a 15-year sale-leaseback deal for $396.2 million.
Dan Hurwitz, president and COO of DDR commented on Mervyn's in its second quarter conference call. "We acquired 36 of our 38 Mervyns stores in 2005. Notably we bought the first portfolio they sold post LBO and were able to select what we believe are the most attractive locations. Approximately 70% of the assets are based in California including nearly 1 million square feet in and around Los Angeles and over 500,000 square feet in the Bay Area. If our Mervyns locations should become available to release, we believe there will be significant retailer interest in the sites we own. Within our core portfolio alone for example, we re-tenanted a former Mervyns box in Utah with Ross Dress For Less, DSW and Michaels increasing rental revenues over 1500% after adjusting for TI. I would also like to emphasize that we hold a $25 million letter of credit that we can access if Mervyns files for bankruptcy or if Mervyns defaults and we terminate all the leases. In addition we hold three other letters of credit aggregating $8 million which we can tap if they default on individual leases," said Hurwitz.
By the end of 2006, Mervyns had grown to have 189 stores in 10 states, but by February 2007, the retailer had closed all of its stores in Oregon and Washington, thereby exiting those states in the northwest.
In February 2008, Macerich (NYSE: MAC
) completed its acquisition of 43 Mervyns stores (30 located in malls, 13 freestanding or part of community centers), totaling 3.4 million square feet, for $430 million in a 20-year sale-leaseback transaction.
Macerich CEO Arthur Coppola explained the company's decision to seize the opportunity: “Thirteen of these Mervyn's stores are located in Macerich malls. We certainly did not want to have a traditional buyer all of a sudden become the owner of the Mervyn's stores in our regional Centers. In many cases, large tracts of land were connected to the Mervyn's stores. We realized that we would be able to buy both our stores as well as these others stores at a very attractive return. But, more importantly, we are able to open up redevelopment opportunities at all of our existing properties."
At the time, Macerich said, aside from those stores planned for redevelopment, it expected to dispose of the Mervyns stores over the next 18 to 24 months, no such dispositions have since been publicized.
According to CoStar Tenant, the typical Mervyn's is 65,000 to 85,000 square feet. The company's headquarters building in Hayward, CA, is 432,000 square feet.
This is the fifth [Corrected, 8/5/08]
retailer that has filed bankruptcy over the last 12 months that Boca Raton, FL-based Sun Capital Partners holds at least a partial stake in. Others include Sharper Image, Wickes Furniture, Rag Shop and Lillian Vernon. [Note: Boston Market was previously listed here as a bankrupt company, which is not correct.]
This article appears in CoStar's Retail News Roundup: Aug. 3 to Aug 9, 2008, a weekly column covering retail store expansions, closings, bankruptcies, acquisitions/mergers/sales, new retail developments, personnel changes, sustainability, and more. This week in the Retail Roundup, CoStar reports on expansions or new concepts at Coach, Tasti D-Lite; new retail developments in WA, VA, FL and TX; acquisition, merger, loan or sale activity at Pep Boys and Centro Properties Group; closings, cutbacks or bankruptcies at Boscov's, Mervyn's, Bennigan's, Steak & Ale, Linens 'N Things, and Office Depot; personnel announcements at GFI Capital; sustainability at Kohl's, Harley Davidson, Peet's Coffee & Tea; and more.