Mervyns woes may aid rivals, off-price chains

By Karen Jacobs - Analysis

ATLANTA (Reuters) - U.S. retailer Mervyn's LLC recent bankruptcy filing could signal stormy times ahead for its small department store peers, but larger, national chains and off-price retailers may find a silver lining.

Analysts cited a strong likelihood that other smaller, regional department stores could also teeter on bankruptcy as credit dries up and consumers shift their spending to discounters.

"The department stores are in a tough space right now," said Ken Perkins, president of Retail Metrics Inc, which tracks retailers' performance. "Until things stabilize, the weaker players are going to continue to get shaken out."

Women's Wear Daily, the fashion industry's trade newspaper, cited unnamed sources in a Thursday report that Boscov's, a Pennsylvania-based operator of about 50 mid-price department stores, could file for bankruptcy as early as Monday if the chain was unable to secure funding.

"Smaller chains ... have less clout" in negotiating with lenders, said Patricia Edwards, a retail analyst with Wentworth, Hauser and Violich.

"The banks are getting pickier and pickier on their commercial loans; I think that's going to be the main thing that does these smaller guys in," she added.

Privately owned Mervyn's LLC, based in Hayward, California, filed for Chapter 11 bankruptcy protection this week, saying the U.S. housing slump and tighter credit had curbed consumers' discretionary spending.

Mervyn's, which was sold to a private investment group by Target Corp in 2004, sells apparel and kitchen supplies at 176 stores in seven states stretching from California to Texas.

The company has so far not announced any store closures or plans to sell assets, and its stores remain open as it looks to restructure.

"Through this process, the company is going to try to refocus and strengthen its business so it can compete successfully," said Andrew Siegel of public relations firm Joele Frank, Wilkinson Brimmer Katcher, which is representing Mervyns.

SECTOR WOES

Mervyn's Chapter 11 filing was the latest blow to the department store sector.

Regional chains such as Gottschalks and Bon-Ton Stores have posted declines in monthly same-store sales this year.

These department stores "haven't been able to offer the type of service that you could get at a (high end) Neiman Marcus, but they aren't able to compete on price with some of the off-mall discount-oriented stores," Perkins said. He added the segment has posted among the steepest earnings declines in retail over the past year.

Should Mervyn's liquidate or close stores, potential winners include national department stores Kohl's Corp, Macy's Inc and J.C. Penney.