Belly Up!

Tuesday, July 29th, 2008 | SMASH Pop Culture with

Mervyn's Bankruptcy

News today that Bay Area-based retailer Mervyn’s filed for Chapter 11 bankruptcy was yet another victim of this crushing economy. Mervyn’s, which had been in financial trouble for several years, announced that its 176 stores in California and the Southwest would face some difficult times ahead.

The decision wasn’t an easy one, and it followed the company’s failure to report its financial states or projections to credit monitoring firms for two quarters in a row, which also prompted their vendors to take back its merchandise that was slated to be sold for the upcoming “back to school” sales. Ouch. That has to hurt.

This news may be of interest to consumers in California, but this is just the latest trend in other national or regional retailers and restaurants that have bit the same Chapter 11 dust in recent weeks and months. In addition to Mervyn’s, we can also add Shoe Pavilion, Sharper Image, Bennigan’s, Linen & Things and the mail order clothing firm Lillian Vernon. What is it that they all share? According to Mervyn’s CEO John Goodman, in a statement this morning, it’s pretty much the same refrain for everyone:

“After careful consideration of available alternatives, the company’s management board determined that a Chapter 11 filing was a necessary and prudent step that allows us to operate our business without interruption as we seek to restructure our debt and other obligations in a controlled, court-supervised environment”

For a reasonably high profile retailer to get to the point of tossing in the towel is tantamount to surrendering, and establishing a low point of company confidence among its employees and its consumers. It’s not just that the writing is on the wall, but it’s an admission that all legal or financial avenues to maintain credit have been all but exhausted. For the other companies, it’s the same story or worse: all Bennigan’s employees and customers across the nation were met at the door with signs simply saying that stores were closed effective immediately.

Bennigan's Bankrupt

While the obvious blame has to go first to the 2008 summer malaise economy of $4 a gallon gas and some 10% cutback in people driving to the malls or restaurants, there are other reasons why these companies reached their individual fates. Indeed, people seem to be buying less and my less-than-scientific observations have seen lighter shopping carts at the big warehouse stores, fewer cars in the shopping malls, and at the same time (somehow) more people seeing superhero movies. OK, so this link is specious, and silly at best. But I don’t think it’s just the economy is the structural reason. It’s part of a larger story that revolves around how consumers view these companies.

There is a reason why, even now, every Walmart in this country is packed. There is a reason why Targets do so well. Ditto for Costco. It’s because consumers know exactly what they’re getting at each place. Call it branding, call it effective marketing, but consumers pretty much like to feel like they know what they pay for, and where they are going to spend their hard-earned cash. Walmart provides incredible volume, which also means you will find virtually everything and the prices will be generally very low. You probably won’t go there to buy a new suit or dress, but their selection of household items, electronics (minus the premium brands), foodstuffs and even plants is plentiful. People know what they’re there for. And in some of the Walmarts, you can do this 24 hours a day.

The result at Target is the same, but the ride is different. Clean, well-stocked, organized and loaded with better quality, and sometimes stylish items have earned a positive branding for the Target name. This was especially true during its period of greatest growth in the early 2000s, when compared to its once rival, K-Mart –then, and pretty much still now, an unkempt, rummaged-through, dilapidated brand with messy shelves to boot. (Even Martha Stewart high-tailed it to Macy’s.)

My point is that consumers in a fiercely competitive economy need precise information as to how and where to spend their money. Bennigan’s, for example, has had a hard time differentiating itself from Applebee’s or Chili’s, and yet the latter two have worked hard on lower-priced and updated menus. Sharper Image, once a shopping mall destination for those of us who had more disposable income to spend on gadgets like mini-fans and massage chairs, has found itself with virtually empty stores.

It’s not that we don’t need the gadgets (and really, we don’t need them), but even the newer merchandise, like the Donald Trump frozen steaks (!), were really nothing new. Also, the company lost a lot on its once famous Ionic Breeze Air Purifier, issuing merchandise credits to 3.2 million plaintiffs as settlement in a class action lawsuit. Last Christmas, as a final blow to consumer confidence on a store that, personally, used to be fun to visit a long time ago, Sharper Image tossed another little indignity by refusing to honor gift certificates that people received as gifts. Again, ouch.

The story at Mervyn’s touches a small nerve with me because I clearly remember when it came to town in Sacramento in July 1976, on a hot summer day, and it was a big, crowded event for my family and me. Nestled inside the Pointe West Plaza near Arden Way and Cal Expo, the new Mervyn’s was spacious, airy, full of energy, with a friendly sales staff, and it was teeming with all sorts of name-brands such as Levi’s and Nike. It was an instant Sacramento destination.

Yet this store, over the years, has been a mini Exhibit A for what Mervyn’s has become, especially in the last decade or so: a brand that didn’t know if it wanted to be upper scale, or low-priced, or something in the middle, and it finally chose something that consumers no longer trusted anymore. It was no longer special because what was inside –the flimsy clothing, the unremarkable shoes and cheap jewelry, plus an overworked staff—was no longer the same. The place where I once scored some sweet midnight navy blue Nike Cortezes during a back-to-school shopping trip when I was 15, well, it wasn’t the same anymore.

Indeed, one of the casualties of this troubled economy may just be those stores and restaurants that exist in some kind of complacent medium, unable to innovate or even make themselves stand out. Does Olive Garden do anything different? Well, yes, they advertise monthly Italian dishes on TV. It’s still not fine cuisine, but at least they’re trying. For retail, is there really a difference between Ross, Marshall’s and TJ Maxx? I didn’t think so. And oh yes, the customer service and the long lines are horrible. Well, consumers, I am happy to say that in this great land of liberty, you have the right to decide.

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