Mervyns founder Merv Morris of Atherton Monday expressed "great sadness for the several thousand employees" impacted by the anticipated closure of Mervyns chain of department stores.
In a telephone interview with the Weekly, Morris also expressed gratitude "for all the good" that came with the stores — known from the time they were founded for their charitable giving to organizations benefiting children and families in communities in which they were located.
Problems that led to the long retrenchment and eventual demise of the chain "started many years ago" and are complex, Morris told the Weekly.
When Morris retired in 1979 he sold the chain to Dayton-Hudson, which in turn sold the stores to a private equity group and concentrated its attention on its lower-end Target stores.
Morris said there was a lack of understanding of how to run a higher-end or traditional department store during changing times.
"It was a combination of things," Morris said of the chain's demise.
"Economic times changed and, frankly, Mervyns didn't change."
"It did endure for 59 years, which is pretty good for a business these days," Morris said. He and his wife, Roslyn, have resided in Atherton since the mid-1950s.
Hayward-based Mervyns announced late last week that it will shut down its remaining stores following the December holidays. Mervyns had filed for bankruptcy protection in July and announced plans to close 26 stores.
Now its other 149 stores will be closed.
The company has stores in seven states, including one on Showers Drive in Mountain View.
At the time of the bankruptcy filing, the chain reportedly had about 18,000 employees, although estimates have ranged down to 16,000 current employees to more than 20,000. There was no immediate estimate of how many local employees will be affected.
Mervyns will bring in an outside liquidator to sell its remain stock, according to the website MarketWatch.
"We are disappointed with this outcome, but the company's declining liquidity position and the extremely challenging retail environment, together with the fact that we have exhausted all other possibilities, requires that we take this action," John Goodman, Mervyns' chief executive officer, said in a statement.
"Although we took a number of steps to improve our financial performance, we were unable to return the company to profitability. We appreciate the hard work and loyalty of our store associates, whose continued assistance we will rely upon during our going out of business sales," Goodman said.
"Consumers know Mervyns for our style, quality and great value and we are confident that the deep discounts available through going out of business sales will drive significant traffic in our stores," Goodman said.
A major complication in the end was a lawsuit filed in early September relating to Mervyns Chapter 11 bankruptcy reorganization in July.
The lawsuit, filed in Chicago, Ill., alleges that the chain's real estate assets (locations and below-market-rate leases) were used partly to service the debt from a $1.2 billion leveraged buyout of the chain in 2004.
The Chicago Tribune reported Sept. 5 that the suit alleges that Mervyns real estate was transferred to newly formed companies that imposed a nearly 90 percent hike in rents, which added to a soft economy contributed to the bankruptcy filing. The Tribune reported that in the fiscal year ending Feb. 2 Mervyns lost $64 million on $2.5 billion in sales.
"By separating Mervyns real estate assets from its retail operations, the private-equity players made sure that any residual value or upside in the real estate assets were reserved for themselves and not for Mervyns," the suit alleges. It was filed by Mervyns Holdings LLC and Mervyns LLC against its former private-equity owners and others.
"The 2004 transaction is a transaction that ultimately led to Mervyns bankruptcy and is a fraudulent transfer that cannot withstand scrutiny," the suit alleges, according to the Tribune report.
Those named in the lawsuit include Mervyns Klaff Equity LLC and Lubert-Adler and Klaff Partners LP, a joint venture of Chicago-based Klaff Realty LP and Philadelphia-based Lubert-Adler Management Inc.
"Filing a suit of this nature requires a pretty vivid imagination and a lawyer who is having a quiet week," Hersch Klaff told the Tribune Thursday, the paper reported. Klaff is spearheading a bid for the Chicago Cubs, currently owned by the Tribune Company along with Wrigley Field.
Target Corp., a previous owner of the Mervyns chain, is also named as a defendant. A spokeswoman said Target "emphatically disagrees" with the lawsuit's claims and said the sale was an arms-length transaction with a competitive-bidding process, the Tribune reported.