Mervyns may seek bankruptcy amid tough retail environment

Since selling Mervyns in 1978, founder Mervin Morris has watched as the mid-priced department store chain has changed owners and faced increasingly stiff competition from other retailers.

He worried that his namesake store, which he founded in 1949 with two employees, wasn’t doing enough to preserve its niche.

“They truly lost their focus,” Morris, 88, said by phone from his home in Atherton, Calif. “Retailing changes rapidly, and they didn’t change with it.”

This month, the Hayward, Calif.-based retailer stopped providing its financial information to at least two credit-monitoring firms -- prompting some vendors to halt merchandise shipments and triggering speculation that the chain might file for bankruptcy.

“I’m advising my clients to hold all shipments at this time due to a lack of communication from Mervyns management,” said Bob Carbonell, chief credit officer at Bernard Sands, a credit monitoring company. “To the best of my knowledge, virtually all of my clients have stopped shipping goods.”

Mervyns declined to comment on its current troubles, first reported Monday by the Wall Street Journal, which quoted anonymous sources saying the chain could ultimately be forced to seek bankruptcy protection.

“There’s nothing that we can say at this time,” said Roy Berces, a Mervyns spokesman.

Mervyns operates 177 stores in seven states, with 129 locations in California. A shutdown of the privately held retailer would be another hit to the country’s struggling malls and could mean an influx of large, empty commercial spaces around the state.

The company has been shuttering locations since it was unloaded by Target Corp. in 2004, when a group of investors led by private investment firms Sun Capital Partners Inc. and Cerberus Capital Management acquired Mervyns for $1.2 billion.

As part of the deal, the company was restructured so its retail operations became separate from its real estate.

A Cerberus spokesman declined to comment, saying the buyout firm no longer was involved in Mervyns’ retail operations, and a spokesman for Sun Capital declined to comment.

Mervyns’ vendors either declined to comment or did not return calls.

Sandwiched between high- and low-end retailers, Mervyns has struggled to find its place among consumers. Even among department stores in its class, the company couldn’t compete on the same level as Wal-Mart or Target, said Eli Portnoy, a Los Angeles brand strategist.

“Mervyns struggled to find an identity that was significantly different, superior to or distinctive from their low-priced competitors,” he said. “Mervyns was kind of floundering in the middle.”

The upcoming back-to-school shopping season could further hurt Mervyns if vendors continue to delay product shipments, Portnoy said. With the retail market “in a state of flux,” he said he expected that many retailers would push up the crucial shopping event to lure customers.

“Retailers are scared to death -- they have no idea what’s going on,” Portnoy said. “Everybody is doing everything they can to boost their sales.”

In the meantime, founder Morris said he was “going to keep my fingers crossed” that Mervyns would pull through.

“In the olden days, when we went into business we didn’t have all the competition that we do today,” he said. “It’s much more competitive.”

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