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Mervyns closing all stores

Associated Press

NEW YORK ” Ailing department store chain Mervyns LLC, which filed for Chapter 11 bankruptcy protection in July, is expected to announce as early as today that it plans to liquidate all of its stores, according to one source close to the situation.

When the Hayward, Calif.-based chain filed the Chapter 11 petition on July 29, it said that it planned to reorganize its business and keep open all of its 175 stores. 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.

Bob Carbonell, chief credit officer at Bernard Sands, a credit monitoring firm, said Friday that based on recent conversations he has had with vendors that sell to the department store chain, Mervyns is looking to close all of its stores. He noted that the chain plans to make the announcement late Friday. He did not know what sparked the liquidation.

Officials at Mervyns did not immediately return phone calls.

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.

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 John 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, 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.