Press

September 09 , 2005

State to have most cuts in Chain's move to shed unprofitable stores

State to have most cuts in Chain's move to shed unprofitable stores

Aprill 9th - 2005 - State to have most cuts in chain’s move to shed unprofitable stores By KAREN ROBINSON-JACOBS / The Dallas Morning News Faced with stiff competition outside its home base, Mervyns LLC said Wednesday that it will pull all 12 of its stores out of North Texas as part of a plan to shut down 62 stores nationwide. The California-based company said it's shedding unprofitable units to focus on "high-growth West and Southwest markets" and its "strong profitable foundation of 193 stores in 10 states." That's down from 255 stores in 13 states. The company also plans to exit Michigan and Oklahoma. If three stores damaged by Hurricane Katrina close, the chain would leave Louisiana, too. But the Lone Star state is taking the biggest hit – losing 28 of 40 stores and a 396,000-square-foot distribution center in Plano. It's scaling back to operations largely in the San Antonio, El Paso and Lubbock areas. The closures will remove 654 full-time and 1,605 part-time positions from Texas' job pool as the state is absorbing Hurricane Katrina evacuees. About 4,800 workers will be affected nationwide. Vanessa Castagna, who signed on in April as executive chairwoman of Mervyns, said the stores would stay open at least until January. She said employees would be offered bonuses to stay on until closing and outplacement assistance. "This is about restoring Mervyns to a profitable, growing company," said Ms. Castagna, who left as the No. 2 executive at Plano-based J.C. Penney Co. late last year. "It's always difficult to make these closures. ... It's the right thing to do for the balance of our associates." She said the stores closing in North Texas had been neglected over the years and have not been profitable for some time. Speaking broadly of the targeted stores, she said: "Our real estate placement was not in the best malls, and that was not changed years ago. We didn't stay competitive." Some industry experts said the closures were wise – given the increasingly competitive retail landscape. "It makes sense," said John Walsh, editor of the Bernard Sands Retail Performance Monitor newsletter. "They had been operating in markets where there was not a great deal of competition. Now that's changing." Opened in 1949 near Oakland, Calif., Mervyns began expanding rapidly after 1978, when it merged with Dayton Hudson Corp. of Minneapolis (now Target Corp.). But Target struggled to boost earnings at Mervyns, and sales declined 6.9 percent in 2003. Though it was long a favorite of suburban moms for its children's clothes and home decorating goods, the chain faced regular rumors that it would be sold. In July 2004, Target announced it would sell Mervyns to an investment group for $1.65 billion to focus on its faster-growing discount stores. Before and after the sale, Mervyns faced increasing pressure from mid-scale marketers such as Wisconsin-based Kohl's Corp., and even the upscale push of former corporate cousin Target. Mervyns' announcement comes about three weeks after Kohl's said it plans to double the number of stores it operates to 1,200 in the next five years. Mervyns has "to retrench and refocus on their core markets in the West and Southwest, where they're facing increasing competition, especially from Kohl's," Mr. Walsh said. Ms. Castagna said the move was not about Kohl's, but she did acknowledge that "certainly today, the customer has many choices of where to shop." She said that to strengthen the remaining stores, Mervyns was investing heavily in marketing and information technology. The company plans to open up to four units – in California, Nevada or Arizona – next year, she said. Existing stores will be remodeled. The closures will put more than 900,000 square feet of retail space back on the North Texas market – not counting the distribution center. That's less than 1 percent of the total retail square footage in the Dallas metro area, said Steven Lieberman, chief executive of the Retail Connection, the real estate agent for all 28 Texas locations. "Dallas is a very healthy retail market and this is quality real estate," said Mr. Lieberman, predicting that most of the space will be absorbed within 18 months. "This will not put a strain on the D-FW retail market at all."