Can Mervyns Survive?

Implications: On the one hand, a Mervyns' bankruptcy could be just another closure of a region department store chain typical of 30 years of store consolidation in the US. On the other, it could be an opportunity to revive a regional name in a market that is quickly rejecting 'cookie cutter' retailing that offers poor service, merchandise sameness, and mediocre quality.

Analysis: According to the NY Post, Mervyns’ Department stores could file bankruptcy by the end of July.  If true, Mervyns will become another 2008 store closure statistic as shoppers cut spending to conserve cash.  Collectively, Mervyns’ store closures will add to the 7% increase in stores to shutter this year.  The ICSC has predicted that about 144,000 stores will close in 2008, the highest number since about 1994 according to data that is available.

Realistically, a Mervyns bankruptcy shouldn't come as any surprise.  The company has struggled to justify its market position since it was acquired from Target by Sun Capital and Cerberus Capital Management  for about $1.2 billion in 2004.  Probably more a real estate play than a legitimate retail turnaround, a Cerberus spokesperson in the Post article suggested the company “more than doubled its money” through its stake in the real estate company that was Mervyn's landlord.  Meanwhile, Cerberus sold its Mervyns’ stake to Sun Capital in 2007 transaction that was only revealed earlier this week. 
 
In retrospect, Mervyns probably could have been revived if a merchant had been running the business.  After all, the company had always been a niche player in the California market place competing with much bigger and better capitalized competitors.  But merchants didn’t buy the company.  Clearly, Mervyn’s success was more about the real estate bubble in the Southwest than it was brilliant positioning and merchandising. 

In deed, had Mervyns positioned itself somewhere other than in the bad land between the discount department store like Target and the high end such as Nordstrom, the company may have be benefited from today's economic slow down.  But its didn't and after all, the risk in changing retail position wasn't necessary for investors to make money selling off the Mervyn's properties.  

Now with the economy slowing, Mervyns has to change or close.  Unfortunately, at a time when retail sameness grips the market, Mervyns could down size and return to its roots, if only there was a merchant to run the business and an investor that had confidence in retails future. 

Contrary to popular 20th century retailing theory, the future doesn’t necessarily belong to the national chains .  In fact the “wheel of retailing” is already rolling along heading toward, smaller, more discriminating retail formats that offer something other than the bland, sameness found in every mall across the USA at Penney, Sears, Macys, Kohls, Target, and Wal-Mart.