By  on October 31, 2008

A U.S. bankruptcy court has approved Mervyns’ proposal to conduct going out of business sales at its 149 stores.

The sales, which began Saturday, had been delayed by the regional retailer’s creditors, who were dissatisfied with their potential to recover funds. However, the two sides reached an agreement to which a judge consented on Thursday.

Mervyns, a $2.5 billion business in its prime, filed Chapter 11 on July 29 and announced plans to liquidate on Oct. 17, making it the first major department store closing of the current economic downturn.

The sales, which are expected to last up to eight weeks, will be operated as a joint venture between Great American Group, SB Capital Group, Tiger Capital Group LLC and Hudson Capital Partners LLC.

The company said that it expects the remaining $900 million in inventory to be “liquidated to the bare walls.”

“We are pleased that today’s decision will allow for the continued employment of many Mervyns employees throughout the holiday season,” the company said.

Mervyns also received court approval Thursday to pay accrued vacation to employees, including those it had already terminated, once it has paid debtor in possession financing.

Although Mervyns’ inventory may be absorbed by New Year’s Day, the disposition of its stores will likely take longer to resolve. The liquidation puts 149 units averaging 80,000 square feet into the “For Rent” category at a time when retail vacancies are high and the willingness and ability of retailers to expand is limited because of difficult business conditions.

Last week, Value City Department Stores filed a voluntary Chapter 11 petition and said it plans to liquidate its 66 stores. Other bankruptcies this year include Boscov’s, Steve & Barry’s and Goody’s Family Clothing Inc. Goody’s emerged from bankruptcy on Oct. 20 and Steve & Barry’s was acquired by Bay Harbour Management in August. Boscov’s future is still undecided.

Mervyns was acquired by a consortium that included Sun Capital Partners Inc., Cerberus Capital Management LP and Lubert-Adler/Klaff Partners LP from Target Corp. for $1.65 billion in September 2004.

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