Lenders and credit analysts are jittery about the future of Mervyns, the $2.5 billion moderate-price regional department store chain.
Industry speculation focused on the possibility of a bankruptcy filing.
Mervyns, based in Hayward, Calif., has been hurt by the housing implosion in that state, and its core customers are being squeezed by rising gas and food prices, job cuts and tight credit.
"We are currently advising all clients to hold orders," Bob Carbonell, chief credit officer for Bernard Sands, a credit-checking firm, said Friday.
A Mervyns spokesman declined to comment.
Credit sources said the factoring arm of GMAC Commercial Finance has stopped approving orders of goods to the chain, which has 177 stores in seven Western states. An executive at GMAC declined comment.
In May, the factoring division of CIT stopped its approval of orders for Mervyns. That left a few factoring firms, which provide finance and credit to apparel manufacturers and take on the risk of payment for client accounts, still checking credit terms. GMAC was among them, as were Wells Fargo and Millberg Factors on a few orders. Slowly, however, the factors have chosen to advise clients not to ship.
Credit sources said the department store had consistently returned telephone calls to vendors, factors and credit-checking firms until about a week ago, when all communication ceased. That has left credit analysts and executives at factoring firms nervous, with some wondering if a bankruptcy filing might be in the works sooner rather than later.
Buyers are said to be having a difficult time getting some goods to the stores since the factors stopped approving orders. Some vendors are still waiting to get paid for orders shipped, having undertaken the risk themselves after the factors withdrew, credit sources said. The impact on Mervyns of factors withholding approval is unclear. Since May, many vendors have chosen to ship anyway. However, with others still waiting to get paid, it's uncertain how many orders they will continue to ship.
The expectation since May has been that the retailer could get some much-needed breathing room soon from the sale of five to 10 high-end store sites, or at least enough cushion to get through the important back-to-school selling season and into the fall.
In May, the retailer said 17 new Mervyns stores had opened since a consortium that included Sun Capital Partners Inc., Cerberus Capital Management LP and Lubert-Adler/Klaff acquired the company from Target Corp. for $1.65 billion in September 2004. The chain said the units reflected "its commitment to maintaining a dominant real estate position in California and the Southwest."
That geographic region appears to be the essential cause of Mervyns' ills. California, in particular, has presented challenges to most retailers, credit analysts said.
The Mervyns stores that are up for sale are in desirable, high-end sites that are rapidly becoming upscale and more affluent than the retailer's typical customer profile, credit and real estate sources said.
Mervyns said in May that it hired DJM Realty LLC to sell those stores, and that the transactions were expected to generate "$25 million to $50 million in cash to fund operations and new growth initiatives."
Although the financial sources said additional funding from the sale of the stores should buy the cash-strapped retailer more time, they cautioned that Mervyns would likely continue to be dogged by rumblings of distress because the bulk of its store base is where consumers are feeling the worst pinch.
The 59-year-old chain, which takes pride in being a family friendly department store, named former Levi Strauss & Co. executive John Goodman as president and chief executive officer in March. Goodman had been president and general manager of the Dockers brand. He replaced Rick Leto, who resigned in December after three years as ceo.
Among the original consortium that bought the chain, Sun Capital is said to have agreed to buy the Lubert-Adler/Klaff stake in Mervyns, although financial sources believe the transaction has not taken place. Spokesmen for Cerberus and Sun Capital did not respond to requests for comment.
Some financial sources said the consortium recouped a good portion of its investment shortly after the purchase through the sale of stores.
One of the bigger deals was in August 2005 when Developers Diversified Realty and Macquarie DDR Trust formed a joint venture for the $396.2 million purchase of 36 Mervyns units. After the sale, the venture leased the assets back to Mervyns for 15 years at an annual rent of $30.5 million.
Of the 36 sites sold, 25 are in California, five in Arizona, five in Nevada and one in Texas. Of the California stores, 12 are in Los Angeles and seven are in San Francisco.
Sources said when DJM Realty sells the five to 10 stores that are targeted, Mervyns' ownership of most of its units will be minimal.
Mervyns stores are located primarily in regional malls, community shopping centers and freestanding sites.
“What he has done at Vuitton is really exceptional,” said @gameofthrones’ actress Gwendoline Christie on @mrkimjones’ final show for @louisvuitton. “He has rebooted luxury in terms of making it commercial, viable and contemporary. And most importantly artistic. He has never compromised his artistic vision for the sake of commodity.” (📷: @zefashioninsider)
After seeing a demand for men’s wear from its customers, British contemporary women’s wear label @ariesarise has added a men’s wear component and will launch a unisex collection with @mrporterlive. The 20-piece collection includes jackets, denim, logo T-shirts and more with deconstructed ‘90s vibes. Set to launch on January 18, you can shop the pieces on Aries’ website and on mrporter.com. #wwdfashion
“And so spending so much time with a character who thinks like that, inevitability you try and analyze yourself and go back and think about your own demons and dark chapters that you had in your life,” says @thedanielbruhl of his role in TNT’s “The Alienist.” The show, set in the Gilded Age of New York, also stars Dakota Fanning and Luke Evans. Head to WWD.com to read about how 39-year-old Brühl prepared for the role and why he thinks the show is so relevant to today #wwdeye ( 📷: @Eriktanner)
Now that Celine Dion’s collection has topped $10 million in sales, the pop superstar, fashion icon and newly-minted industry player is eyeing growth in Asia. Read the full report by @tiffanyap, link in bio. #wwdnews #celinedion
“My personal philosophy to beauty is paying attention to oneself. I love to be outdoors, lots of fresh air, trying to take care of yourself as best you can. I always notice that comes through,” says Felicity Jones, the global face of @shiseido-owned @cledepeaubeauteus, which launches today. Head to WWD.com to read more about the actress’ love for beauty and how she prepared for her new role in “The Basis of Sex,” playing the young Ruth Bader Ginsburg. #wwdbeauty (📷: @dandoperalski)
Among the familiar faces at @off____white’s show was a surprise figure: Japanese artist @takashipom, pictured here on Wednesday morning. Other show-goers included @jerrylorenzo, who spoke about his upcoming project: a @nike collaboration for back to school, with designs inspired by his childhood on the West Coast. Sitting in the front row were Future, Don Crawley, @miguel and more. See the rest of the photos on WWD.com #wwdeye (📷: Stephane Feugere)
According to @laurentsai, former “Terrace House: Aloha State” cast member, she didn’t know she was auditioning for the Japanese version of “Real World.” “I was telling a couple of my friends and someone’s like, ‘That sounds a lot like Terrace House.’ I was like, ’No it can’t be.’” Turns out, it was. But Tsai isn’t just a reality star — she’s an illustrator who has worked with Starbucks Japan and most recently, she’s dipping her toes into the fashion world. Head to WWD.com to read about her time on the show, modeling and her art. #wwdeye (📷: @danieldorsa)
More changes are coming to New York Fashion Week: Beginning with the spring 2019 collection, @alexanderwangny will move his New York show to June from September, adopting a biannual schedule with collections shown in June and December. Additionally, the @cfda is planning for an official summer/winter fashion season taking place as soon as June and December 2018. Read more about the upcoming changes on WWD.com. #wwdnews #wwdfashion (📷: @slovekinpics)